Nepal Rastra Bank Issues New Guidelines on CEO Salary and Benefits

Kathmandu. Nepal Rastra Bank has issued new guidelines regarding the salary, allowances, and other benefits of the Chief Executive Officers (CEOs) of banks and financial institutions. 

To make CEO service facilities transparent and organized, the Bank and Financial Institution Regulation Department of the Rastra Bank has issued the 'Guidelines on Salary, Allowances, and Other Benefits of Chief Executive Officers of Banks and Financial Institutions, 2083'. 

To ensure uniformity in determining CEO remuneration in banks and to promote institutional governance, a special committee will now have to be formed. The board of directors will have to form a three-member 'Salary, Allowances, and Other Benefits Recommendation Committee' under the convenorship of an independent director, with two other directors. The guideline states this. 

This committee will recommend remuneration based only on the CEO's qualifications, the institution's return on capital, business size, operating profit, and the remuneration difference with lower-level employees.  

Annual Salary and Allowance Limits

Two criteria have been determined for determining the CEO's annual salary and allowances. It has been arranged to maintain only the minimum amount according to these. 

Commercial Banks: Maximum 2 percent of the average employee expenses of the past 3 fiscal years or maximum 0.015 percent of the total assets at the end of last year.  

National Level Development Banks ('B' Class): Maximum 3 percent of average employee expenses or maximum 0.020 percent of total assets.  

National Level Finance Companies: Maximum 0.10 percent of total assets.  

Microfinance Financial Institutions: Maximum 0.050 percent of total assets.  

The Rastra Bank has clarified that this guideline will be mandatory only for newly appointed CEOs if the salary of a CEO who has already contracted and is working before this guideline comes into effect exceeds the limit. 

Performance-Based Remuneration and Other Benefits

A certain percentage of the total financial benefits provided to the CEO can be made performance-based. Such remuneration can be up to a maximum of 20 percent of the annual fixed salary-allowance amount. 

For this, indicators such as the institution's profit, return on assets, non-performing loans, and compliance with regulatory provisions will be analyzed. If the performance is not as per the agreement, this benefit will not be received.  

In terms of other facilities, CEOs will receive only one mobile, one laptop, and one car. No additional vehicle can be added during the service period. 

A maximum of 0.50 percent of the annual fixed salary and allowances can be spent on professional memberships, internet, and newspapers. There is a strict provision that if expenses exceed the prescribed limit, the amount will be recovered from the CEO or the decision-makers.  

The Rastra Bank has stated that this guideline will not be mandatory for institutions declared problematic, institutions with more than 20 percent foreign investment, government-owned banks, and branches of foreign banks in Nepal.