revised guidelines on remuneration practices · takers (mrts), one of the key aspects of...

2016

Revised Guidelines on Remuneration Practices

2017

StateBankofPakistan

Annexure‐I of BPRD Circular No. 1 of 2017

Table of Contents Prologue......................................................................................................................................................................................11. Objectives........................................................................................................................................................................22. ScopeoftheGuidelines............................................................................................................................................2Section‐I GovernanceofRemunerationPolicy............................................................................................31. ResponsibilitiesofBoardofDirectorsforRemunerationPolicyandMechanism............32. ResponsibilitiesofBoardRemunerationCommittee........................................................................33. CompositionofBoardRemunerationCommittee................................................................................44. PerformanceAssessmentandRemunerationforNon‐ExecutiveDirectors.........................45. IdentificationofMaterialRiskTakers(MRTs)......................................................................................46. IdentificationofMaterialRiskControllers(MRCs)..............................................................................5

Section‐II AlignmentofCompensationwithRisksandBusinessObjectives.....................................6Section‐III CompositionandStructureofRemuneration..........................................................................7Section‐IV IndependenceandRemunerationofMaterialRiskControllers(MRCs)..................8Section‐V EffectiveOversightofRemunerationSettingMechanism.....................................................8Section‐VIDisclosuresrequirementsforRemuneration...........................................................................9Section‐VII Explanations...............................................................................................................................................9Glossary....................................................................................................................................................................................12 AdditionalDisclosuresonGovernanceandRemuneration ........................................................... 13

A. QualitativeDisclosures .............................................................................................................. 13

B. QuantitativeDisclosures ........................................................................................................... 17

RevisedGuidelinesonRemunerationPractices

StateBankofPakistan Page1

PrologueBetterCorporateGovernanceisacornerstonetoefficiencyandstabilityofanyinstitution,especiallyfinancialservicesproviders.AstheBoardandseniormanagementofBanks/DFIscarry responsibilities to provide strategic direction, vital business decisions andimplementation, it iscrucial that theyshouldbemademoreresponsibleandaccountablefor their performance. The remuneration practices of senior management and BoardmembersisoneoftheveryimportantaspectsofoverallCorporateGovernanceframework,asitinfluencestheperformanceoftheinstitutions,whichresultantlyimpactthereturnstoordinaryshareholders,depositorsand‐moreimportantly‐thestabilityoffinancialsystem.Intheaftermathofglobalfinancialcrisis,theglobalstandardsettingandregulatorybodiessuchasFinancialStabilityBoard(FSB),BaselCommitteeforBankingSupervision(BCBS),Organization forEconomicCo‐operationandDevelopment (OECD)andEuropeanCentralBank etc. are increasingly focusing on the strengthening and rationalization ofcompensation practices in the financial sector. The FSB developed Principles for SoundCompensation Practices in 20091. These principles are accompanied by ImplementationStandardsandwerelateradoptedbyBankforInternationalSettlements(BIS)andBCBSintheirinstructionsandguidelines2fornationalregulatorsongovernanceandremunerationpractices; and have been made a part of Basel framework through Pillar III disclosurerequirementsandsubsequentamendmentsinit.In Pakistan, the issues related to remuneration of Directors and Executives have beenaddressedinvariousregulatoryinstructions.However,thereisaneedtoreviewandalignthe overall remuneration related frameworkwith international standards and emergingbestpractices.Therefore,theGuidelinesonRemunerationPracticeshavebeendevelopedto provide banks andDFIswith recommendedpolicymeasures anddisclosures on theircompensationpractices.However, these guidelines should be treated as minimum benchmarks towards betterremunerationpracticesfurtheraugmentingcorporategovernanceculture.TheBanksandDFIs are encouraged to take additionalmeasures to adopt best practices and guidelinesissuedbyvarious internationalstandardsettingbodiesandregulators tosupplementthemeasuresrecommendedinthisdocument. 1FSBPrinciplesofSoundCompensationPractices(April02,2009)2InternationalguidelinesandstandardsrefertothevariousdocumentsrelatedtoRemunerationPracticesissuedbyFSBandBCBSundervarioustitles.(www.financialstabilityboard.org)



1. Objectives

TheobjectiveoftheseguidelinesistoprovideguidancetoBanksandDFIstodevelopfair,transparentandsoundcompensationpolicythatisalignedwithrisksandresponsibilitiesof Financial Intermediation. These guidelines intend to make Directors and seniormanagement more accountable for their governance and performance vis‐à‐visdetermination and payment of compensation. The compensation policy needs to beobjectiveandtransparent.2. ScopeoftheGuidelines

The Guidelines on Remuneration are applicable to all Banks and are to be applied tomembersoftheBoard,Keyexecutivesandotherseniorlevelemployeesoftheinstitution.However, keeping in view the complexities and level of risks, an institution mayappropriatelyapplysimilarprinciplestoitsemployees,otherthankey/seniorexecutives,MaterialRiskTakers(MRTs)andMaterialRiskControllers(MRCs),byformallyidentifyingsuchemployeesorclassofemployeesandexplainingtherationaleofsuchmeasuresintheremunerationpolicy.DevelopmentFinanceInstitutions(DFIs)mayappropriatelycomplywiththerequirementsof these guidelines in accordancewith their size, nature of business and complexities ofoperations.TheseguidelinesarenotapplicabletothoseforeignbankswhichareoperatinginPakistaninbranchmode.However,theywillberequiredtoprovideawrittenconfirmationtoSBPthatFSBandBISguidelinesonremunerationpracticesorothersimilarlocalstandardsarebeingfullycompliedwithbytheirBoardandHeadofficesintheirhomejurisdictions.



Section‐I GovernanceofRemunerationPolicy

1. ResponsibilitiesofBoardofDirectorsforRemunerationPolicyandMechanisma) The responsibility of developing and implementing institution‐wide policy on

remunerationrestswiththeBoardofDirectors(BoD).TheBoDshouldensurethatafair,transparentandcompetitiveremunerationmechanismbedevelopedandputinplacethatencouragesthecultureof‘payforperformance’.

b) TheBoardofDirectorsmaydirectlyapprovethecompensationandbenefitsofCEOandotherkeyexecutives.Forthispurpose,theBoardmaydevisespecificcriteriatoidentify thepositions forwhich itwillexercisethepowersofdirectlydeterminingcompensation.Forthematteroffairnessandtransparency,thesedecisionswillberecorded in writing with justifications. However, the compensations determinedandpaidtoanyofficialshouldbeinlinewiththeoverallcompensationpolicy.

c) The BoD should constitute a Human Resource and Remuneration Committee(keepinginviewthecomplexity,largebankscanalsoformseparatecommitteesfor‘HumanResourceManagement’and‘Remuneration’functions).

2. ResponsibilitiesofBoardRemunerationCommittee

TheBoardRemunerationCommittee(hereinafterreferredtoasBRC)shouldhavefollowingresponsibilities:

a. The BRC shall be responsible for recommending to the Board, the structure of

compensation package of ExecutiveDirectors, CEO, Key Executives and any otheremployeeorgroupofemployees institutionwide(asrequiredby theBoD).TheserecommendationswillthenbeapprovedatappropriateleveleitherbyshareholdersorbytheBoDitselfaccordingtolegalandregulatoryrequirements.

b. Ensure that the institution‐wide remuneration policy should take into account allcadresofemployees.Theremunerationpolicyshouldspecificallytakeintoaccountthepay‐gapbetweenthehighestpaidandthelowestpaidemployees,acrossvariouslevels aswell as across the organization. The pay‐gap shall be based on the totalcompensationawarded to the employees and shouldbemaintainedat reasonablelevels.Theinstitutionsshouldpreferablydevisea formalpolicyonpay‐gap,whichshouldnotallowconcentrationofthebenefitsof institution’sperformanceonlytotoplevelorcertainclassorgroupofemployees.Thepaystructureforallemployeesshouldbefair,competitiveandencourageperformanceandmotivation.

c. Theremunerationpolicyoftheinstitutionmayalsoprovideforreasonablelevelsofcompensation for contractual employees of institution and commensurate withtheirassignments.

d. TheBRCwillreviewtheremunerationpolicyandremunerationsettingmechanismat least once every three years. Among other factors, the reviewof remunerationframework may include, but not limited to; a) the effectiveness of remuneration



policy andmechanism i.e.,whether it is providing the expected outcomes, b) anynecessary changes required and c) any unintended consequences. The findings ofreviewandrectificationmeasuresshallbepresentedtotheBoardforapproval.

e. Keeping in view the importance of Material Risk Controllers and Material RiskTakers(MRTs),oneofthekeyaspectsofremunerationpolicywouldbetodevelopseparatestructuresofremunerationforthesetwocategories.(TheMaterialRiskTakersandMaterialRiskControllersaredescribedindetailunderpoints5and6,respectively)

f. IndevisingtheRemunerationsettingpolicyandmechanism,theBRCcanalsoseekinternal inputs from any other committee of the Board or directly from anydepartmentorofficialoftheinstitution.

g. Ifsorequired,theremunerationcommitteecan,seekindependentexternaladvice/expert opinion for accomplishment of devising an effective and prudentremunerationframework.(Explanation: The external advice should be independent in the manner that nodirectororemployeeoftheinstitutionshallhaveanyconflictofinterest)

3. CompositionofBoardRemunerationCommitteea) The BRC shall be comprised of non‐executive directors preferably independent

directors inmajority. In case, independent directors are not inmajority, than thechairmanshipofBRCshallbewith ‘IndependentDirector’.TheexecutivedirectorsandotherseniorofficialscanbeinvitedbytheBRCtopresentinformationandsharetheirviews.Theseexecutiveswillnothaveanyvotingrights.

b) ThemembersoftheBRCshouldbesuitablyqualifiedandexperiencedtoaccomplishthetasksofdevelopingandoversightofremunerationsettingpolicy.ThemembersofBRCshouldhavesufficientunderstandingofvariousbusinessunitsandMaterialRisk Controllers and their significance for the institution’s growth and survival,alongwith the risks emanating from these functions. The nomination criteria formembersofBRCshallbedecidedbytheBoDandshallbeformallyrecorded.

4. PerformanceAssessmentandRemunerationforNon‐ExecutiveDirectorsa) TheBoDshallberesponsibletodeveloptransparent,measurable,quantitativeand

qualitative performance measures for the Board, committees and individualdirectorsasdescribedandenvisagedinBPRDCircularNo.11of2016.

b) The non‐executive directors should only be compensated in accordance with theinstructions laid down in Prudential Regulations issued by the State Bank ofPakistanfromtimetotime.

5. IdentificationofMaterialRiskTakers(MRTs)a) The MRTs should be identified as functions and designations rather than as

individuals.TheMRTsshouldhaveappropriatelevelofauthorityandcontrol.



b) For thepurpose of these guidelines all CountryHeadsor principal officers (or bywhatever name called) of overseas branches / operations of Pakistani bankswillalso be included inMRTs Category. Further, all Presidents/CEOs (or bywhatevername called) of local and foreign subsidiaries of institutions incorporated inPakistan shall also be included in the definition of MRTs. In addition to CEOs /Country Heads, the BoD can also identify other officials of foreign branches andoperationsasMRTs.

c) For proper assessment of othermaterial risk takers, the BoD should seek inputsfrom Audit and Risk Committees of the Board and / or from otherMaterial RiskControllers.

6. IdentificationofMaterialRiskControllers(MRCs)TheBoardshouldalsoidentifyfunctionsandprocessesthatareestablishedorneedtobeestablishedforriskidentificationandriskmitigationfunctions.Thefunctionssuch as Compliance, Audit, and RiskManagement etc are common examples. ButBoard can identify other functions which may fall under this category. Moreimportantly,allMRCsshouldhavesuitableautonomyandauthoritytoperformtheirtasks independently, without influence from the functions they are assigned toreview. For the purpose of these guidelines, the appropriate levels of employeesshouldalsobeidentifiedinremunerationpolicyasMRCs.

TheidentificationofMRTsandMRCsshouldbebasedonclearandwellthoughtpolicyandthe employees falling under these functions should be communicated about theremunerationpolicyandtheaspectsapplicabletotheirroleandresponsibilities.[Explanation:Incaseinstitutiondecidestoidentifyspecificfunctionofemployeesorgroupofemployees(e.g.treasurydealers,relationshipmanagersetc.)asMRTs,itisimportantthattheBoard should set criteria for identification of such MRTs and provide details on theircompensationrelatedmattersinremunerationpolicy.]



Section‐II AlignmentofCompensationwithRisksandBusinessObjectives

1. Itmustalsobeensuredthat‘ProfitMaximization’shouldnotbetheonlybenchmarkfordeterminationof salariesandbonusesof theemployees.Rather, remunerationpolicyshouldgivesignificantimportancetothequantumofriskstakentogenerateprofits.

2. The remuneration of all MRTs should be dependent upon the achievement ofperformancebasedonriskandrewardmatrixandqualitativefactorssuchaslegaland regulatory compliance and organizational discipline etc. The performance onqualitativefactorsmayoverridetheachievementsofquantitativefactors.

3. Theremunerationpolicyshouldclearlyidentifymajortypesofrisksandhowthese

risksaretakenintoaccount fordeterminationofriskadjustedcompensation. Forthispurpose,theBRCshouldcloselycollaboratewithRiskandAuditCommitteesofthe Board andMRCs for inputs on institution‐wide risk assessment, risk appetiteandrisktolerancewhichmayultimatelyleadtodevelopmentofriskrewardmatrix/performancematrixinremunerationpolicyforMRTs.

4. ThecompensationmechanismshoulddiscourageMRTsfromtakingexcessiverisks

to gain short term profits resulting in their bonuses or performance awards. Inorder to control undue risk‐taking, the compensations should be adjusted for alltypesofrisks.

5. Thecompensationpolicyshouldbealignedwithlongtermandshorttermbusiness

objectivesoftheinstitution.

6. Fixedandguaranteedbonusesarenotconsistentwiththepayforperformanceandalignmentofriskswithcompensation,hencethesetypesofbonusesshouldnotbeallowedundertheremunerationpolicy.

(Explanation:BonusespaidtoemployeesforEid,Christmasorsimilarfestiveoccasionsetc.andanyotherreasonablefixedbonuspaidtonon‐MRTsshallnotbesubjecttothisclause,providedthisshouldbebasedonanobjectiveandconsistentcriteria)



Section‐III CompositionandStructureofRemuneration

1. ThecompensationtobeawardedtoMRTsshouldbecomposedofvariableandfixedcomponents. The mix of cash, equity and other forms of compensation must beconsistent with risk alignment. The mix may vary depending on the employee’spositionandrole.Thescorecard/matricesoranyothermethodused,shouldexplaintherationaleforthemixrecommendedforeachposition.

2. AsapartofremunerationmechanismanappropriateproportionoftheamountofvariablepayofMRTswouldneed tobewithheld/deferred.For thispurpose, theremunerationpolicyshouldprovideforthebasisofcalculationofdeferredpayanddefermentperiod.

3. Compensationpayoutschedulesmustbesensitivetothetimehorizonofrisks.Forthispurpose,thecompensationpolicymayrecommenddifferentrangesofvariablecompensationand timeperiodsofdeferredcompensation fordifferentrisk takersaccording to the nature and magnitude of risk involved. For MRTs it isrecommended that the payout period for deferred compensationmay not be lessthanthreecalendaryears.(Explanation: The amount thuswithheldwould be paid proportionately during thedeferralperiod,evenifthatindividualisnomoreemployeeoftheinstitution.Forthispurpose,theremunerationpolicyshouldprovideforafairandtransparentmechanismforfinalsettlementofwithheld/deferredpay)

4. Thevariablecompensationshouldbelinkedwiththeperformanceoftheemployees.

Bonusesshoulddiminishordisappearintheeventofpoorperformanceofdivisionor business unit. Subdued or negative financial performance of the institutionshouldgenerallyleadtoaconsiderablecontractionoftheinstitution’stotalvariablecompensation taking into account both current compensation and amountspreviouslyearnedandwithheldunderdeferredpayarrangements.

5. The institutions should not allow their employee(s) to hedge or get insured their

remuneration, or provide opportunities in anymanner that could undermine theeffectivenessoftheseguidelines.

6. Theinstitutionsshouldensurethattotalvariablecompensationinanyspecificyear

doesnotlimittheirabilitytostrengthentheirequitybase.



Section‐IV IndependenceandRemunerationofMaterialRiskControllers(MRCs)

1. For the MRCs to operate independently, it is vital that they have clear line ofresponsibilitiesandareindependentofareasorfunctionsbeingreviewedbythem.In order to ensure their independence, the performance appraisal of MRCs’ staffshouldnotbeperformedbybusinessorrisktakingfunctions.

2. The compensation of MRCs should be adequate enough to ensure that their

authoritymaynotbeundermined;andtoattractandretainsuitablyqualifiedandexperiencedstaff.

3. The compensation of MRCs should not be determined or influenced by the

profitability of functions or areas which they review. Hence the compensationsetting mechanism should have inbuilt processes to independently assess theperformance of MRCs irrespective of the performance of the area under theirreview.

4. The compensation ofMRCs should be based on the achievement of the goals and

objectives of their respective functions and according to the significance of theirfunctionsintheinstitution.Further,thecompensationstructureofMRCsshouldbesuch that their independence is not compromised or influenced by the functionstheyoversee.

5. The compensation of MRCs may also be composed of fixed and variable pay

components with fix compensation being the major portion. However, underrare/exceptional circumstances, MRCs may be awarded a variable remunerationhigher than fixedportion, subject toapprovalbyBRC.ThecompensationofMRCscanalsobeadverselyeffectedbylossevents,wherenegligencefromtheirfunctionalobjectivesandresponsibilitiesisidentified.

Section‐V EffectiveOversightofRemunerationSettingMechanism

1. The internal audit and compliance functions of the institution should review theremunerationpolicyforanyinconsistenciesbeforeapprovaloftheBoD.Duringtheimplementation phase the internal audit should periodically review the effectiveimplementationofthepolicyonanongoingbasis.

2. Theexternalauditorsduringtheirreviewofannualaccountsshouldalsoreviewand

verify the information made available in various statements provided in theprescribeddisclosures.



Section‐VIDisclosuresrequirementsforRemuneration All Institutions should provide detailed disclosures on remuneration. The minimumrequireddisclosureshavebeenprescribed in “AdditionalDisclosuresonGovernanceandRemuneration”. However, the institutions are encouraged to further enhance theirreportingongovernanceandcompensation,inadditiontotheprescribeddisclosures.Section‐VII Explanations a. The terms like, Director, Executive Director, Key Executive, President / CEO etc.havethesamemeaningsasdefinedinPrudentialRegulations.b. The Guidelines on Remuneration Practices aremeant to supplement the existingCorporate Governance framework of Banks/DFIs. In case of any conflict between theseguidelines and existing legal and regulatory instructions on the subject, the legal andregulatoryinstructionsshallprevail.c. Thewords ‘Remuneration’and ‘Compensation’havebeenused interchangeably inthese guidelines and include all fixed and variable salary, emoluments and benefits bywhatever name called and also include all cash and non‐cash benefits allowed to theofficialsinlieuoftheirservicesrenderedtotheinstitution.TheitemssuchasSign‐onandSeverance payments are also part of remuneration. In addition any amount paid by theinstitution on behalf of any employee (other than for official purpose; i.e., traveling andlodging etc) shall also be included in the total remuneration. All paymentsmade to theChairman of the Board and non‐executive directors, or on their behalf (except forreasonable re‐imbursementsof traveland lodgingexpenses) shallbeconsideredas theirremuneration.AsthePrudentialRegulationsallowpaymentofFeesandallowancestonon‐executivedirectorsandChairman,thetermremunerationwillincludefeesandallowancesforsuchdirectors.

d. ForidentificationofMRTsandMRCs,theinstitutionsmaydevelopinclusioncriteriatoensurebroadlyconsistent/uniformscopeofapplication.Forinstance,anemployeemaybeconsideredMRTorMRCwhereanyofthefollowingcriteriaaremet:

(1) President/CEO/ChiefOperatingOfficer(COO)oranyotherequivalentposition;(2) Employee is a member of the senior management, i.e. direct reportee to the

President/CEO/COOoranyotherequivalentposition;(3) Country Heads, principal officers (or by whatever name called) of overseas

branches/operationsunlesstherelatedbranch/operationissubjecttosimilarremunerationregulationsinthehostcountry;



(4) President/ CEO/COO of fully owned local and foreign subsidiaries unless therelatedforeignsubsidiaryissubjecttosimilarremunerationregulationsinthehostcountry;

(5) Directreporteestothemembersofseniormanagementmanagingthosecriticalfunctions,asdeterminedbyBRC,thatsubjectthebanktosignificantrisks;

(6) All other Material Business Unit heads managing aggregate assets, in theirrespectivebusinesslines,greaterthanorequaltoaspecificthreshold.Itwillbethe discretion of the bank’s BRC to determine the level that is theminimumthreshold for the bank. It is expected that these decisionswill be deliberatedwithin theperspectiveof thesizeandriskappetiteof the institution.For thatpurpose, BRC may consider providing a fix threshold e.g. business unitsmaintainingassetsofequalorabovePKR1billionorasapercentageoftier1capitali.e..2%oftier1capitaletc.

(7) Withregardtocreditrisktransactions,employee: is responsible for proposing credit proposals, or structuring credit

products;or has authority to take or approve a decision on such credit risk

exposures;or is amember of a committeewhich has authority to take the decisions

referred to in point (a) or (b); of a nominal amount per transactionwhichrepresentsgreater thanorequal to specific threshold.BRCshallberesponsibletodeterminethethresholdasexplainedaboveat(6).

(8) In relation to treasuryportfolio, the employee is the headof a treasurydesk,including money market, equities, FX, derivatives, sales etc. or is a directreporteetosuchhead. Thisshallnot includedealerswithouttheauthority toundertakepositionsontheirown.

(9) With regard to decisions to approve the introduction of new productssubjectingthebanktosignificantrisks,theemployee:

hastheauthoritytotakesuchdecisions;or isamemberofacommitteewhichhasauthoritytotakesuchdecisions;

BRCmay identify additional employees asMRTs/MRCsbased on the risk profile of suchemployeese. The deferred benefits pool may be managed using either of the followingschemes/optionswithdetailedanalysisofalltherelatedaspects:

Managementofdeferredpoolwithinthebank;and/or Setting up of a new fund along with a management function and

governancemechanismforsuchdeferredpools.



f. MRCsprimary task is to reviewandassess the idiosyncraticandsystemicrisksofprocesses, products and functions, to determine and recommend the ways to mitigatethose risksand tominimize theprobabilityofoccurrenceof lossevents.These functionsarenotdirectlyinvolvedinbusinessandoperationsfunctionsoftheinstitution.

g. These guidelines are intended to act as broad outline for institutions to developtheirremunerationsettingpoliciesandmechanisms.



GlossaryThefollowingtermsareclarifiedforthesakeofgeneralunderstandingandstandardizationonly.a) Board:BoardofDirectors(BoD)oftheinstitution.b) DeferredRemuneration:Theportionofremunerationthatiswithheldfollowingtheendofaccrualperiod.c) Fixed Remuneration: Fixed remuneration is that part of compensation whichremains unaffectedby theperformance of the institution or individual employee. Itmayinclude items such as base pay and allowances etc. that are part of total compensationpackageofemployee.d) Institution: Forthepurposeoftheseguidelines,theinstitutionshallmeanabank,andaDFI.e) Malus:Preventionofaccrualordisbursementofbonus/awardstoemployees.f) PayGap:Differencebetweenaverageminimumandmaximumremunerationoftheinstitution,basedontotalremuneration.g) Remuneration Framework: The term Remuneration Framework is used inbroadersenseandincludesremunerationpolicy,remunerationsettingmechanismandpaystructureetc.h) Severance Allowance: Severance Allowance (by whatever name called) is apaymentmadetoanyemployeeatthetimeofhisretirement/separation/orterminationofcontract,overandabovehisnormalretirement/separation/ terminationbenefitsordues(likegratuity,providentfund,pensionsetc.).Severanceallowancemayormaynotbepartoftheemploymentcontract.i) Sign‐onPayments:Sign‐onPayments/JoiningBonus(bywhatevernamecalled)isany amount paid to any employee, whether in cash or shares etc., as an attraction orincentivetojointheofferinginstitution.Thepaymentmaybemadeatthetimeofjoiningorlaterandmadeinlump‐sumorbrokendowninseriesofpayments.

j) ContractualEmployees:All contractual employees except thirdparty contractualemployees. Moreover, Banks/DFIs must ensure that no third party employee is anMRT/MRC.j) VariableRemuneration:Variableremunerationisthatpartoftotalcompensationpackage of an employee which is linked with some pre‐determined measure ofperformance/targetachievementorprofitabilityetc.Variablecomponentofremunerationmeanscashbonuses,stockbonuses,awards,otherincentivepaysorallowancesetc.

‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐X‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐

AdditionalDisclosureonGovernanceandRemuneration


AdditionalDisclosuresonGovernanceandRemuneration

The institutions shouldprovide additional information on governance and remunerationbased on following disclosures, in their annual financial statements and reports thereto.Theinstitutionsshallfollowtheprinciplebasedapproachwhilecomplyingwithqualitativedisclosures mentioned hereinafter as per the BoD approved accounting and disclosurepolicy. Any information that BoD thinks is privy to the institutions andmay affect theircompetitivenessneednottobedisclosedinthequalitativedisclosuresbutshallbeopentoSBPinspectorsduringtheircourseofinspection.A. QualitativeDisclosures

Thefollowingdisclosuresshouldbeapartoftheinstitutions’annualfinancialstatementsandshouldbeplacedatthebeginningofthereport3.

1. ExplanationontheCorporateGovernancecultureandstandardsfollowedbythe institution,thegovernancevalues institutionaspires forandstepstakentoachievethem.

2. DiscussionontheprocessofnominationandselectionofBoardmembers(includingexecutivedirectors);including,a. ProcessofappointmentandnominationofDirectors.b. Profileofeachofthedirectorandadvisorincludinghisqualifications,expertise

andpastworkexperiencealongwiththeirstatus(Executivedirector,Independentdirector,NomineedirectororSponsorDirector).

c. DetailsofMembershipontheBoard(s)/ShariahBoardsofothercompanies(Table‐1)

d. TheInstitutionshavingShariahBoardshallalsodisclosethedetailsmentionedin(a),(b)and(c)above,forallthemembersofShariahBoard.

3. DetailedseparatedisclosureforeachoftheBoardCommittees(containing,attheminimum,followinginformation)a. CompositionandmembershipofeachoftheBoardCommittees.b. TORsofBoardcommittees.(ForIslamicBanksandBankswithIslamicBanking

Branches;separatedisclosuresonBoards’oversightandCommittee(s)onShariahCompliancefunction(ifany)andShariahBoard.

c. NumberofBoardandCommitteemeetingsheldduringtheyear.(Table‐2)

3 (Abrief,preferablyunderaseparateheadingof‘CorporateGovernance’inChairman’sorDirectors’Report)



d. NumberofmeetingsattendedbyeachmemberoftheBoardandCommittees(Table‐2).

e. KeyachievementsofBoardCommitteesduringtheyearthatinstitutionmayliketohighlight.

f. TORsofShariahBoard,numberofmeetingsheldandattendedbyeachmember.(forinstitutionsrequiredtohaveShariahBoard)

4. Disclosurerelatedtoappointmentandscopeofworkofexternalexpert(s)(ifany)for formulation and implementation of remuneration policy and Assessment ofBoardperformance.TheChairmantocertifythattheexpertshiredareindependentandnoconflictofinterestexistswithanyBoardmemberoranykeyexecutive.

5. DisclosurerelatingtotheRemunerationPolicy:

a. Information on overall remuneration policy of the institution, its key featuresandobjectivesandremunerationrelatedgovernanceframework.

b. Amongothers,featuresoftotalcompensationi.e.fixedremunerationaswellasvariousformofvariableremunerationoffered(cashandstockbonuses,and/orstockoptionplansoranyotherinstrument)toemployeesofinstitution/DFI.

c. Factors considered for differentiating the variable pays across employees orgroupofemployees.

d. AdescriptionofthetypesofemployeesconsideredasMRTs/MRCs.e. The ways in which current and future risks and performance are measured

whenimplementingtheremunerationmeasuresandthewaysremunerationofMRTs/MRCsarealignedwiththeserisks.

f. GiventheresponsibilitylevelsofthekeyexecutivesinmajordecisionsandthatoftheDirectorsindevisingoverallpolicyframework,highlightthebasisfor;

thedeterminationofcompensationsprovidedtonon‐executivedirectors,and

remuneration provided to the Shariah Board members and itscomponents,

bothfixedandvariablepayprovidedtoMRTs/MRCs.

g. ThereportshouldclearlydiscussthebasisforpaymentofbonusesandawardsMRTs/MRCs.

h. A discussion on how the institution ensures that MRCs are remunerated

independentlyofthefunctionstheyoversee.i. Explanationofentity’spolicyonvestinganddeferralofvariableremuneration,

rationaleofthefractionofremunerationbeingdeferred.



j. A discussion explainingwhether an entity has offered Employee Stock OptionScheme (ESOS) to its employees and its salient features along with specificquantitativedisclosuresof(ESOS)underrelevantIAS/IFRS.

Concomitant to the disclosures given in this circular, the institution should ensureadherencetoallapplicableaccountingstandards,laws,rulesandregulations.



Table–1DisclosureonBoardofDirectors Sr.No. Nameof

DirectorsDateofJoining/LeavingtheBoard

StatusofDirector(Independent,Non‐Executive,Executive)*

MemberofBoard

Committees

NumberofotherBoardMembershipsalongwithnameofcompany(ies)

*AsdefinedinPrudentialRegulationsforCorporate&CommercialBanking

Table–2Directors'ParticipationinBoardandCommitteemeetingsSr.No.

NameofDirector

NumberofBoardMeetingsAttended

NumberofBoardcommitteesAttendedNameofBoardCommittee

NameofBoardCommittee




Totalmeetingsheld



B. QuantitativeDisclosures

Table – 3 This disclosure will replace the existing Disclosure Note No. 39 present in “Revised Forms for Annual Financial Statements” issued vide BSD Circular No.04 dated February 17 2006 as amended from time to time. Sr. No.

Items Chairman Directors Members Shariah Board

President /

CEO

Key Executives

Other MRTs/MRCs Executives

(other than CEO)

Non‐Executive

AmountinRs.'000' 1 Fees and Allowances etc. 2 Managerial Remuneration i) Fixed ii) Total Variable of which; a) Cash Bonus / Awards b) Bonus & Awards in Shares* 3 Charge for defined benefit plan 4 Contribution to defined Contribution Plan 5 Rent & House Maintenance 6 Utilities 7 Medical 8 Conveyance 9 Others (such as Leave Fare Assistance,

club memberships, children education etc. please specify item‐wise)**

10 Total (1 ‐ 9 ) 11 Number of Persons 12 Any Other Perks and Privileges: allowed to above officials should also be disclosed and specified separately.



ExplanationsandGuidanceforTable‐3

i. The terms Directors/ Executive Directors/ Non‐Executive Directors, CEO and KeyExecutiveshavesamemeaningasdefinedinPrudentialRegulations(PRs)forCorporateandCommercialBanking.ForthepurposeofthesedisclosuresKeyExecutivewillalsoincludeExecutiveswhohavedirectlyreportinglinetothePresident/CEOorBoDoritsCommittees.

ii. The term MRTs /MRCs are explained in detail in the ‘Guidelines on RemunerationPractices’.

iii. Remuneration toNon‐ExecutiveDirectors (including Chairman) shall only be paid in

accordancewithPRsforCorporateandCommercialBankingandallemolumentspaidto thesepersonsshallbedisclosedunder thisdisclosure. Allpaymentsmadeby theinstitution to or on behalf of the individuals designated in Table‐3 shall be reported.However payments made for official travelling and lodging etc. are not included inremuneration.

iv. *Shares/Stocksawardedasperformancebonusorotherwiseshouldbereportedhere.SharesofferedunderEmployeesStockOptionScheme(ESOS)shouldbereportedunderseparatenote.

v. **Expenses incurred of Rs. 0.5 million or more per annum under any single head /

accountneedstobedisclosedindividually.

vi. Based on the actual expenses incurred by the entity, the non‐monetary benefits andperquisitesprovidedtotheaboveofficials(suchasvehicles,residenceetc.)shouldalsobeaddedintotalcompensation.

vii. Forthepurposeofconsolidatedfinancialstatement,thesametablewillbeapplicable.

viii. Forfurtherguidance,pleaserefertothe‘GuidelinesonRemunerationPractices.’

Note:Thistableshallprovidecomparativeinformation.Therefore,separatetablesshallbegivenforcurrentandpreviousyears.



Table‐3aRemunerationPaidtoDirectorsforParticipationinBoardandCommitteesMeetingsSr.No.

NameofDirector MeetingFeesandAllowancesPaidAmountinRs.in'000'ForBoardMeetings

ForBoardCommitteesNameofBoard

Committee

NameofBoard

Committee

NameofBoard

Committee

NameofBoard

Committee

TotalAmountPaid

TotalAmountPaid

Table‐3bDisclosureofremunerationpaidtoShariahBoardMembers AmountinRs.'000'

Items Chairman ResidentMember Non‐ResidentMember(s)

a. MeetingFeesandAllowances b. OtherHeads(pleasespecify) c. d.

TotalAmount TotalNumberofPersons

TheinformationinTable–3bshallbeprovidedforcurrentyearaswellasprioryear.

Note: ThesumtotalofamountsatthefootingofTable3aandItem(a)ofTable3bshouldmatchwithamountmentionedagainstitemNo.1ofTable3.



Table–4DetailsofTotalCompensationPaidAmountinRs.'000'

Sr.No.

Items CurrentYear Prioryear

1 FeesandAllowancesetc. 2 ManagerialRemuneration i)Fixed ii)Variable ofwhich; a)CashBonus/Awardsetc. b)Bonus&AwardsinSharesetc. 3 Chargefordefinedbenefitplan 4 Contributiontodefinedcontributionplan 5 Rent&HouseMaintenance 6 Utilities 7 Medical 8 Conveyance 9 Others 10 SubTotal(1‐9) 11 Sign‐onBonus 11a)AmountPaid(ifany) 11b)No.ofPersons 12 SeveranceAllowance 12a)AmountPaid(ifany) 12b)No.ofPersons 13 GrandTotal(10+11a+12a)

TheinformationinTable–4shallbeprovidedforcurrentyearaswellasprioryear.

Note.ThistablewillexplainthebreakupoftotalcompensationpaidtoalltheofficialsandemployeesoftheInstitution,includingfees/remunerationpaidShariahBoard.The following items of the note 30 'Administrative Expenses'will be replacedwithnewterminology‘TotalCompensationExpenses’:

a)Salaries,allowancesetcb)Chargefordefinedbenefitplanc)Contributiontodefinedcontributionplan&d)Non‐executivedirectors’feesallowancesandotherexpense.

Theabove tablewillbeproducedas sub‐note30.1of ‘TotalCompensationExpenses’.Allother sub‐notes to ‘Administrative Expense’ shall be adjusted in numerical orderaccordingly. Furthermore, no expenses related to fees, compensation and any allowanceshouldbedirectlyrecordedinadministrativeexpense.



The Institutions/DFIs shall continue with the practice of further explaining Charges forDefined Benefits and Contributions Plans and other items of significance under theirrelevantnotesandsub‐notes.C. DisclosuresapplicableonlyforMRTs/MRCs

1. NumberofEmployeesandtotalamounthavingreceivedavariablepay.2. Numberandtotalamountofguaranteedbonusesawarded.3. Numberandtotalamountofsign‐onbonuses/awardspaid.4. Numberandtotalamountofseveranceallowancespaid.5. Detailsofdeferredremuneration;

remuneration deferred during the year, paid during the year andoutstanding.

forms of deferred remuneration i.e., Cash, Shares and others instruments(pleasespecify).

6. Numberand totalamountof remunerationreducedorwithheld throughmalus (ifany).

revised guidelines on remuneration practices · takers (mrts), one of the key aspects of...

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