Dmitry Akopov | March 13, 2014
The Bonus Component
In early 2014, the amendment to the law on the Central Bank has come into effect giving it the right to assess remunerations of bank employees in terms of their compliance with the scope and nature of the bank's activities and risks it takes.
According to the draft instruction issued by the regulatory authority for senior management directly affecting the bottom line, the variable part of the remuneration should be not less than 50% and determined depending on the position and level of responsibility of the employee. For employees who are responsible for risk control, most of the compensation should be fixed reserving the ability to adjust the size of the bonus by 40% or more, and possibly cancel it completely. The draft instruction also contains specific examples of reduction and cancellation of bonuses. For example, a negative return on investment in bank shares which might be and is a common case for Russian public banks. In particular, out of seven banks whose shares are traded on the Moscow Stock Exchange, only shares of Sberbank and Nomos Bank recorded an increase in prices since the beginning of the year. In addition, bonuses can be cancelled because of unstable income from one-off transactions. But in some cases, even if the bank showed an operating loss, bonuses for certain achievements of individual employees will be paid, without breaking the limits of the Central Bank.
Dmitry Akopov, Jacobson Partners