Amendment provide legal framework for remuneration of banker

Remuneration policies in the banking sector have been subject to criticism, as bonus-driven principles encourage the taking of high short-term risks for greater personal benefit instead of aiming for the achievement of long-term stable goals. On April 3 2011 amendments to the Credit Institutions Act entered into force setting forth bankers’ remuneration policies and establishing a legal framework that must be considered when designing remuneration regulation in credit institutions.

The amendments are aimed at governing the remuneration principles of managers and senior officers employed at banks. Under the new regulation, remuneration policies of such employees must be clear, transparent and consistent, offering reliable and efficient risk management principles. Additionally, remuneration must be guided by the business strategy and general values of the bank. One notable change is that the remuneration must be based on the long-term objectives of the bank and take into consideration the ability to cope with external variables.

Setting forth general remuneration regulations is not uncommon. For instance, the Dodd-Frank Act in the United States requires shareholders to approve the compensation of executive officers. As a global trend, the amendments to regulations on remuneration and compensation of managers and senior officers stipulate provisions aimed at discouraging excessive risk taking for the purpose of increasing personal gains. The approach behind the amendments in credit institutions appears healthier for the financial system and they should provide additional stability in the system for the long run.