Financial institutions are required to introduce specific risk outcomes to payout of key executives as per SBP's Governance & Remuneration Guidelines
Risk outcomes formally becoming part of executive payout decision making
Is your bank mindful of the risks associated with its decision making?
Better Corporate Governance is a cornerstone to efficiency and stability of any institution, especially financial services providers. As the Board and senior management of Banks/DFIs carry responsibilities to provide strategic direction, vital business decisions and implementation, it is crucial that they should be made more responsible and accountable for their performance. The remuneration practices of senior management and Board members is one of the very important aspects of overall Corporate Governance framework, as it influences the performance of the institutions, which resultantly impact the returns to ordinary shareholders, depositors and - more importantly - the stability of financial system.
In the aftermath of global financial crisis, the global standard setting and
regulatory bodies such as Financial Stability Board (FSB), Basel Committee for
Banking Supervision (BCBS), Organization for Economic Co-operation and Development (OECD) and European Central Bank etc. are increasingly focusing on the strengthening and rationalization of compensation practices in the financial sector.
The FSB developed Principles for Sound Compensation Practices in 2009. These principles are accompanied by Implementation Standards and were later adopted by Bank for International Settlements (BIS) and BCBS in their instructions and guidelines for national regulators on governance and remuneration practices; and have been made a part of Basel framework through Pillar III disclosure requirements and subsequent amendments in it.
In Pakistan, the issues related to remuneration of Directors and Executives have been addressed in various regulatory instructions. However, there is a need to review and align the overall remuneration related framework with international standards and emerging best practices. Therefore, the Guidelines on Remuneration Practices have been developed by SBP to provide banks and DFIs with recommended policy measures and disclosures on their compensation practices as per BPRD circular no.1 of 2017.
Get in touch with us and learn more about how you can manage change and improve your governance framework to adopt a remuneration mechanism which enables accountability at the top while maintaining the flexibility of your business model.