Revise CEO salary cap

A series of incidents of late has proved that the nearly six-month-old central bank decision to impose a salary cap on the chief executives of banks and financial institutions was an unwarranted move. The decision capped the salary of the chief executive to within either 5 percent of the three-year average expenditure on employees at the institution concerned or a maximum of 0.025 percent of the total assets recorded a year earlier, whichever is lower.



Soon after enforcement of the decision, this newspaper came out against it, arguing that the move would be counterproductive since it limited the rewards for efficient and innovative minds, thus ultimately slowing the development of the banking sector. Sadly, the central bank turned a deaf ear to our opinion. And now the policy has started producing bad results, particularly in B, C and D category financial institutions. The central bank has lately started receiving applications, particularly from finance companies, appealing for a revision of the salary cap policy as it has emerged as a stumbling block to human resource management. Many others that have not yet knocked on the doors of the central bank are having trouble finding new chief executives after the previous ones resigned as the new policy allows them less salary than their predecessors.



As a result, the banking sector, which is already reeling under a number of problems like liquidity crisis and poor corporate governance, is facing the new setback of waning confidence among the top honchos manning such institutions. Not all financial institutions, particularly of category B and C, offer huge salaries to their chief executives as thought by many lawmakers and experts who pushed for the salary cap. Implementation of the faulty policy fixing the maximum salary of chief executives has also limited pay rise prospects for second and third-ranking officials. For example, a second-ranking official at Unique Finance resigned after learning that there was no prospect of any rise in his pay as it was already close to the salary of the chief executive.



Similarly, Patan Finance and Paschimanchal Finance are unable to find new chief executives because the salary they can offer was not enough to lure professionals. All these problems emerging lately show that the salary cap has only exacerbated problems in this sector. Since the policy has already started causing trouble, we urge the central bank to review its policy. It is never too late to correct mistakes and such corrective steps will only bolster professionalism at the central bank.

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