NRB plans limit on bank CEO pay

KATHMANDU, MAY 29: Over the last year, executives of ailing big public companies in the West have been put in the hot seat because the incongruity between their taking home such fat paychecks while their companies foundered fanned the public into a rage. While there isn’t an epidemic of big companies in Nepal going under, the time may have come to examine whether the top executive officers in Nepal’s public companies too are getting salaries, perks and benefits that are a tad too generous. [break]



This notion of keeping an eye on executives’ paycheck is not coming from far leftfield. In fact, the huge remuneration paid by some of the financial institutions in Nepal to their top bosses has already led many in Nepal to wonder whether the sum paid for the top executives is worth awarding, particularly to those executives of financial institutions whose financial prospects do not look encouraging.







“If you look at the amount of perks and benefits paid to chief executive officers (CEOs) of some development banks --most of whom are also the promoters of the bank--it won’t take much to realize that a huge mismatch exists between the total amount paid to employees and the paychecks that top executives are given,” says a board member of NRB, who has ample knowledge about the structure of executives’ pay in Nepal.




Citing some of the glaring examples of such mismatches, the expert, who preferred to remain unnamed, told Republica that the CEO of a leading development bank, besides pocketing the returns on his share ownership of the bank, drew over 40 percent of the total expenses made by his bank’s entire employees during the last fiscal year. “And if the expenses made by the bank for its other top executives, including Chief Finance Officer are added up, the total expenses come to around 75 percent of the expenses made for its employees,” he said.



An NRB’s snap study has found that this practice of handing out huge amount of perks and benefits to the head honchos, even if the financial condition of a bank is not very sound, has been used by some executives cum promoters to “quietly” recoup their investments, in the form of remuneration. In other words, such a practice ensures that they will secure their investments even if the bank goes bust.



But the good times may soon be coming to an end for many executives. If things go as planned, Nepal Rastra Bank, the central bank of the country, will soon introduce a benchmark in Nepal’s financial sector, which will seek to moderate these excesses.



Sources at the central bank say that a team at the bank has started working out the modalities that would limit the remunerations that the top executives of banks are enjoying. “The basic modality is to have to two separate models for financial institutions: one for those churning out a profit, another for those running on loss,” said an officer. He added that the incomes of a CEO or a managing director of those financial institutions running on losses should be limited to 20 to 30 percent of the entire expenses made out to employees.



“This amount should also include returns received by the top executives on their investments and the number of shares that an institution annually awards to its executives,” said the officer. For those institutions that are turning a profit and whose financial health is sound, that is for the institutions that are doing the job that they are supposed to do, the new strictures will be less stringent: the range will be relaxed to up to 40 percent.

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