China Banking Regulatory Commission, Guidelines for Regulation of the Sound Compensation of Commercial Banks

The term “commercial banks” refers to enterprises with legal personality established within the PRC in accordance with the law that engage in businesses such as taking deposits from the public, extending loans and handling settlement (Article 3).

Other types of banks and non-bank financial institutions regulated by banking regulatory departments shall, mutatis mutandis, observe these Guidelines (Article 28).

Main contents: Commercial banks shall design a uniform compensation management system. Compensation shall be composed of fixed compensation, variable compensation and income in the form of benefits. Fixed compensation means basic compensation. Variable compensation includes performance-based compensation and all types of medium- and long-term incentives. Income in the form of benefits includes insurance premiums and housing common reserve. The amount of basic compensation at commercial banks shall generally not be more than 35% of the total compensation (Article 5). The performance-based compensation of the main responsible persons of commercial banks, determined according to the annual business assessment results, shall be no more than three-times their basic compensation (Article 7).

In the case of the senior management personnel, and personnel in positions that have an important impact on risks of the commercial bank, the payment of at least 40% of their performance-based compensation shall be deferred for at least three years in general. The ratio of performance-based compensation of key senior management personnel paid on deferral shall be over 50%, or even 60% wherever possible. Where the risk loss that falls under the responsibility of senior management personnel and relevant personnel within the specified time limit is exceedingly high, the commercial bank shall have the right to recover the performance-based compensation that has already been paid out within the corresponding period, and cease paying the remaining portion. These provisions also apply to personnel who have left the bank (Article 16).

The performance assessment indices of commercial banks shall include the economic efficiency index, risk cost control index and social responsibility index. The risk cost control index shall include at least capital adequacy ratio, non-performing loan ratio, provision coverage ratio, case risk ratio and leverage ratio. Social responsibility index shall in general include the compliance with risk management policies, lawfulness, regulatory assessment, moral standards, enterprise value and customer satisfaction level (Article 19). Where one of the indices fails to reach the monitoring requirements, the average performance-based compensation of all personnel in the bank may not exceed that in the previous year. Where two of the indices fail to reach the monitoring requirements, the average performance-based compensation of all personnel in the bank shall be reduced from that in the previous year. The reduction in the performance-based compensation of senior management personnel shall be markedly higher than the average amount of reduction. Where three or more of the indices fails to reach the monitoring requirements, the total basic compensation of the next year of all personnel in the bank may not be increased, in addition to the aforementioned adjustment of the performance-based compensation (Article 20).

Commercial banks shall disclose the specific compensation details of the board of directors, senior management, and personnel in positions that have an important impact on bank risks (Article 22). In the case of subsidiaries, branches and non-bank financial companies established by commercial banks outside China, the compensation shall be adjusted and monitored by the parent bank according to the principles in these Guidelines in conjunction with the law provisions and regulatory requirements of the different countries and regions (Article 28).

Related legislation: PRC Banking Regulation Law (Revised), Oct 31 2006