Business Times

Cap on bank director bonuses being considered

The Central Bank (CB) is gathering data pertaining to ‘fat’ bonus payments of bank directors and has plans to scrutinize the final statistics which may result in the regulator imposing a ceiling on their bonuses.

This was discussed at the Bankers’ Symposium organised by the CB early this week. When a participant at the panel discussion asked the panelists whether the CB intends to cap directors’ bonuses, Yvette Fernando, Director of Bank Supervision CB said that the big bonus payments of bank directors’ have come to the CB’s attention and the regulator is looking at it.

She said that the CB will examine the data once all information is collected. “We will announce in the future what we intend to do,” she added. At the symposium titled ‘Repositioning Banking Towards a Higher Growth Path’, panellist and speaker, Naomal Goonewardena noted that Executive Directors enjoy an outsized sense of entitlement and that there’s an increased risk arising from disproportionate part of employment benefits coming from stock options (Employee Share Option Schemes) granted to them.

Analysts say that at times granting such stock options to listed bank directors may be dangerous.
“If the company's stock rises, holders of options generally experience a direct financial benefit.
This gives employees an incentive to behave in ways that will boost the company's stock price,” an analyst said.

Mr. Goonewardena also noted that employee share option schemes are risky as they are not fully disclosed in the balance sheets/accounts of banks. “This can lead to create accounting,” Mr. Goonewardena pointed out.

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