The State Bank of Pakistan has fixed the maximum limit of remuneration at Rs 800,000 to be paid to the board members of banks and DFIs. While, amending the Para 2 of Section 'C' of Prudential Regulation G-1, which inter-alia deals with the remuneration of board members of banks/DFIs, the State Bank has also advised banks and DFIs that not to award the consultancy or allied work to a director or to the firm, institution or a company, in which he holds substantial interest.
As per amendments to Prudential Regulations G-1, banks/DFIs may pay a reasonable and appropriate remuneration to their board members. Therefore, board's remuneration committee will 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 bank/DFI, etc; and will be approved by the shareholders of bank/DFI on pre- or post facto basis in the annual general meeting.
As per the parameters, remuneration will be fixed in Pakistani rupees (PKR) invariably; nevertheless, payment of the same can be made to foreign directors in equivalent foreign currency, where necessary. While determining remuneration of a board member (including the chairman) for attending a board and/or its committee meeting a maximum Rs 800,000 limit should be observed for 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).
In addition, all other banks/DFIs, which assets size is less than Rs. 500 billion or profit after tax is less than Rs. 1 billion, they can pay remuneration up to Rs. 500,000. However, the SBP has made it clear that these are the maximum remuneration limits and 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 will be reviewed by the SBP after every three years. 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 percent of the remuneration set for him/her under clause (c) of this Para, with proper justification in the remuneration policy.
Traveling, boarding and lodging expenses of a Director for attending Board and/or its committee meeting(s) will be paid by the bank/DFI at actual. 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. Banks/DFIs will also ensure that no additional payments or perquisites are paid to the Non-Executive Directors and Chairman except as mentioned in above clauses and no such remuneration should be paid to the Executive Directors except usual TA/DA as per the bank/DFIs standard rules and regulations.
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 earlier. 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.
The SBP has also asked the banks and DFIs that no consultancy or allied work will 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. The administrative expenses pertaining to the office, staff and security allocated to the Chairman of the Board should be determined rationally. In addition, Proper and transparent disclosure of remuneration and other benefit/facility provided to the Board members, will be made in the annual financial statements of the bank/DFI.
According to SBP, these instructions are applicable to all banks/DFIs and they are advised to ensure compliance within six months of the issuance of this circular. Non-compliance shall attract punitive action under relevant provisions of the Banking Companies Ordinance, 1962, the central bank maintained.
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