| 1. | The compensation committee is responsible for the overall oversight of management’s implementation of the compensation system for the entire Company. In addition, the compensation committee must regularly monitor and review outcomes to assess whether the Company-wide compensation system is creating the desired incentives for managing risk, capital and liquidity. It must have clear terms of reference, be properly constituted to exercise competent and independent judgement on the Company’s compensation policies and practices and work closely with the Company’s risk committee in the evaluation of incentives created by the compensation system. The committee must review the compensation plans, processes and outcomes, at least annually. An independent assessment of the compensation system by an external third party must be conducted at least once every five (5) years.
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| 2. | The Board must have oversight of the compensation system for the whole Company, not just for Senior Management. The compensation structure must be in line with the strategy, Risk Appetite, objectives, values and long-term interests of the Company. Incentives embedded within compensation structures should not incentivise Staff to take excessive risk.
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| 3. | Issues that the compensation committee of the Board must consider in overseeing the operation of Company-wide compensation policies include, but are not limited to:
| a. | the ratio and balance between the fixed (basic salary and any routine employment allowances that are predetermined and not linked to performance) and variable components of compensation;
| | b. | the nature of the duties and functions performed by the relevant Staff and their seniority within the Company;
| | c. | the assessment criteria against which performance-based components of compensation are to be awarded; and
| | d. | the integrity and objectivity of the process of performance assessment against the set criteria.
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| 4. | The annual fixed amount paid to the members of the Board should be comprised of payment for their service on the Board and for their participation on Board committees, with greater weighting applied to members chairing committees. The payment may also include the value of other non-monetary benefits, e.g. insurance and healthcare. The agreement with each member of the Board must specify all the details of his/her compensation.
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| 5. | Negative financial performance or net loss reported by a Company in a financial year should generally lead to a contraction of the Board’s total compensation and Senior Management bonus. The Central Bank may impose additional reductions to the Board’s total compensation where the negative financial performance was due to non-compliance with laws or Regulations, omission or error by the Board. In addition, a net loss reported by a Company in a financial year is expected to lead to a contraction of the Staff bonus pool.
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| 6. | Staff in the Control Functions of risk management, compliance and internal audit and in the case of Takaful Companies, Shari`ah control and Shari’ah audit, must be compensated in a way that makes their incentives independent of the lines of business whose risk taking they monitor and control. Instead, their performance measures and performance incentives must be based on achievement of their own objectives so as not to compromise their independence. This also applies to the compliance function staff embedded in independent support or control units.
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| 7. | If Staff in the Control Functions receive variable compensation, their total compensation must be made up of a higher proportion of fixed relative to variable compensation.
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| 8. | Companies must identify, both on a solo basis and at the Group level, the Staff who have the potential to take or commit the Company to significant risk, including reputational and other forms (Material Risk Takers), and consider the extent to which the structure of their compensation is effectively risk aligned. The identification must be performed by means of an annual assessment and based primarily on control and influence over risk; i.e. Staff who receive incentive compensation and have an ability, either alone or as a member of a group of Staff, to take or influence risk that is significant to the Company. These may include, but are not limited to:
| a. | Senior Management and key Staff (including but not limited to the Chief Executive Officer and other members of Senior Management who are responsible for oversight of the Company’s key business lines and, if applicable, the Control Functions).
| | b. | Staff whose duties involve the assumption of risk or the taking on of exposures on behalf of the Company (including but not limited to proprietary traders, dealers, and loan officers).
| | c. | Staff who engage in the design, sales and management of insurance products.
| | d. | Staff who are incentivised to meet certain quotas or targets by payment of variable remuneration (including, but not limited to, those in marketing, sales and distribution functions).
| | e. | Staff in the Control Functions.
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| 9. | For Senior Management and Material Risk Takers:
| a. | a proportion of compensation must be variable and paid on the basis of individual, business-unit and Company-wide measures that adequately measure performance;
| | b. | a substantial portion of the variable compensation must be payable under deferral arrangements over at least three (3) years. These proportions should increase significantly along with the level of seniority and/or responsibility. For Senior Management and the most highly paid staff, the percentage of variable compensation that is deferred should be substantially higher than other Staff;
| | c. | a portion of variable compensation may be awarded in shares or equivalent ownership interests or share-linked or equivalent non-cash instruments in the case of non-listed Companies, as long as these instruments create incentives aligned with long-term value creation and the time horizons of risk. Awards in shares or share-linked instruments must be subject to an appropriate share retention policy; and
| | d. | The remaining portion of the deferred compensation can be paid as cash compensation vesting gradually. In the event of negative financial performance or net loss of the Company and/or the relevant line of business in any year during the vesting period, any unvested portions should be clawed back, subject to the realised performance of the Company and the business line.
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| 10. | Contractual payments related to the termination of employment should be examined to ensure there is a clear basis for concluding that they are aligned with long-term value creation and prudent risk-taking; any such payments must be related to performance achieved over time and designed in a way that does not reward failure.
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| 11. | Where the Company makes any severance payments, such payments must be subject to appropriate governance, limits and controls, and should relate to performance over time. Severance payment must not reward failure or potential failure of the Company.
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| 12. | Companies are encouraged to follow best international practices in sound compensation, Including the guidance provided by the Financial Stability Board in its issued Principles and Standards on Sound Compensation Practices as updated from time to time.
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