Nepal Rastra Bank to cap on bank CEOs' pay

KATHMANDU, Sept 8: Nepal Rastra Bank (NRB) has initiated groundwork for introducing a set of guidelines that, among other things, will put a cap on perks and benefits of Chief Executive Officers (CEOs) of banks and financial institutions.
The guidelines, which are expected to come into force within the next two months, are most likely to limit the perks and benefits offered to the CEOs to eight to 10 percent of the total expenses made on employees of the respective institutions.
An NRB official said the governor informed a delegation of Nepal Bankers´ Association on Sunday that the process of formulating the guidelines to regulate the pay of CEOs has sped up.
"The governor told the delegation, which comprised CEOs of leading commercial banks, that NRB is soon bringing guidelines to limit CEOs´ pay," the source quoted the governor as saying.
Though the members of the delegation didn´t protest the proposal, their initial response was not supportive either, the source said. During the discussion,some of the CEOs urged the central bank to put the limit at around 15 percent of the expenses on all staff. According to an NRB study, the perks and salary of a CEO of a national level commercial bank ranges from Rs 500,000 to Rs 1.4 million.
The official added that a ceiling on the salary and benefits of CEOs was needed to check existing practice of handing out huge amount of perks and benefits to the head honchos, even if the financial condition of the bank concerned is not very sound. Similarly, the huge pay has been used by some executives cum promoters to “quietly” recoup their investment, in the form of remuneration.
The NRB study also concluded that the practice of awarding huge pay to the CEOs and other subordinates was also putting pressure on the management, especially of new banks, to increase earnings by many folds to pay the increased liabilities. This often instigates the management to make massive risky investment in unproductive sectors like land and real estate that are rejected by established banks, said the official.
The proposed guidelines aim to make perks and benefits of CEOs transparent. Given the strong support of NRB board and international context where there has been increasing call for putting a cap on CEOs´ pay, the chances of the guidelines coming into force are high, the official added.