KARACHI: The State Bank of Pakistan (SBP) on Saturday amended Prudential Regulations G-1 and sets maximum limits for payment to board members of banks and Development Financial Institutions (DFIs).
In a circular issued to banks, the central bank said that the banks/DFIs may pay a reasonable and appropriate remuneration to their board members, as per the following parameters:
a) Board’s remuneration committee shall formulate a comprehensive and transparent remuneration policy for the Chairman and other Directors. This policy should be made with clear mandate and charter keeping in view the ownership structure, governance mechanism, risk profile, scope of operations, performance of the bank/DFI, etc.; and shall be approved by the shareholders of the bank/DFI on pre or post facto basis in the annual general meeting.
b) Remuneration shall be fixed in Pakistani rupees (PKR) invariably; nevertheless, payment of the same can be made to foreign Directors in equivalent foreign currency(ies), where necessary.
c) While determining remuneration of a Board member (including the Chairman) for attending a Board and/or its committee meeting(s), following maximum limits should be observed:
| Category | Parameters to Determine Category | Maximum Limits of Remuneration for a Board/ Committee Meeting |
| First | Those banks/DFIs which have:
Above Rs. 500 billion Assets Size OR Above Rs. 1 billion after tax profit (As per last audited annual accounts) | Up to Rs. 800,000 |
| Second | All other banks/DFIs which do not fall in the first category | Up to Rs. 500,000 |
The SBP said that these are the maximum remuneration limits. Banks/DFIs may determine remuneration of their board members (including the Chairman) taking into consideration their own governance structure and the level of responsibility & expertise of the concerned directors while remaining within the maximum limits as per their respective category and other instructions given in the circular. Further, the remuneration limits along with thresholds for assets size and profitability defined in above table will be reviewed by SBP after every three years.
d) The remuneration of a director for performing extra services, including the holding of the office of Chairman, may additionally be determined with the approval of the shareholders, as the case may be, up to 20% of the remuneration set for him/her under clause (c) of this Para, with proper justification in the remuneration policy.
e) Traveling, boarding and lodging expenses of a Director for attending Board and/or its committee meeting(s) shall be paid by the bank/DFI at actuals. In this regard, the remuneration policy should clearly specify the parameters for such expenses whereas any additional costs should be borne by the concerned Director.
f) Banks/DFIs shall also ensure that no additional payments or perquisites are paid to the Non-Executive Directors and Chairman except as mentioned in above clauses.
g) No such remuneration should be paid to the Executive Directors except usual TA/DA as per the bank/DFI’s standard rules and regulations.
h) The remuneration policy of a bank/DFI should also include the provisions to deal with the remuneration of underperforming Director(s) based on their performance evaluation conducted as per guidelines issued vide BPRD Circular No. 11 of 2016.
i) The remuneration policy should adequately envisage provisions for accountability of the Directors for their conduct according to the scope of their responsibilities and scale of remuneration.
j) No consultancy or allied work shall be awarded to a Director or to the firm(s), institution(s) or company(ies) etc. in which he individually and/or in concert with other Directors of the same bank, holds substantial interest.
k) The administrative expenses pertaining to the office, staff and security allocated to the Chairman of the Board should be determined rationally.
l) Proper and transparent disclosure of remuneration and other benefit/facility provided to the Board members, shall be made in the annual financial statements of the bank/DFI.
The SBP said that the above instructions are applicable to all banks/DFIs and they are advised to ensure compliance within six months of the issuance of this circular.
The non-compliance shall attract punitive action under relevant provisions of the Banking Companies Ordinance, 1962.
