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  • HC-5 HC-5 Remuneration of Approved Persons and Material Risk-Takers

    • HC-5.1 HC-5.1 Principle

      • HC-5.1.1

        The conventional bank licensee must remunerate approved persons and material risk-takers fairly and responsibly.

        Amended: January 2014
        October 2010

    • HC-5.2 HC-5.2 Role of the Board of Directors and Remuneration Committee

      • HC-5.2.1AA

        The board of directors must actively oversee the remuneration system s design and operation for approved persons as well as for material risk-takers. The CEO and senior management must not primarily control the remuneration system.

        Added: January 2014

      • HC-5.2.1

        The Board must establish a remuneration committee of at least three directors which must:

        (a) Review the conventional bank licensee's remuneration policies for the approved persons and material risk-takers, which must be approved by the shareholders and be consistent with the corporate values and strategy of the bank;
        (b) Approve the remuneration package and amounts for each approved person and material risk-taker, as well as the total variable remuneration to be distributed, taking account of total remuneration including salaries, fees, expenses, bonuses and other employee benefits;
        (c) Approve, monitor and review the remuneration system to ensure the system operates as intended; and
        (d) Recommend Board member remuneration based on their attendance and performance and in compliance with Article 188 of the Company Law.
        Amended: January 2017
        Amended: July 2014
        Amended: January 2014
        October 2010

      • HC-5.2.1A

        In reviewing the remuneration system (see Subparagraph HC-5.2.1(c)), the remuneration committee should ensure that the system includes effective controls, including back testing and stress testing of the remuneration policy. The practical operation of the system should be regularly reviewed for compliance with regulations, internal policies and bank procedures. In addition, remuneration outcomes, risk measurements, and risk outcomes should be regularly reviewed by the Board for consistency with Board's approved risk appetite.

        Added: January 2014

      • HC-5.2.1B

        Stress testing or stressed measures might be used by banks to help ex-ante risk adjustments take into account severe but plausible scenarios, based on possible expected loss on loans, as an example. Due to the uncertainty of payoffs, there will always be a need for ex-post adjustments so as to back-test actual performance against risk assumptions.

        Added: January 2014

      • HC-5.2.1C

        As part of the duties noted under Paragraph HC-5.2.1, the remuneration committee must carefully evaluate practices by which remuneration is paid for potential future revenues whose timing and likelihood remain uncertain. It must demonstrate that its decisions are consistent with an assessment of the bank's financial condition and future prospects.

        Added: January 2014

      • HC-5.2.2

        The committee may be merged with the nominating committee.

        October 2010

    • HC-5.3 HC-5.3 Remuneration Committee Charter

      • HC-5.3.1

        The committee must adopt a written charter which must, at a minimum, state the duties in Paragraph HC-5.2.1 and other matters in Appendix C of this Module.

        October 2010

      • HC-5.3.1A

        Members of the remuneration committee must have independence of any risk taking function or committees.

        Added: January 2014

      • HC-5.3.2

        The committee should include only independent directors or, alternatively, only non-executive directors of whom a majority are independent directors and the chairman is an independent director. This is consistent with international best practice and it recognises that the remuneration committee must exercise judgment free from personal career conflicts of interest.

        October 2010

    • HC-5.4 HC-5.4 Standard for all Remuneration

      • HC-5.4.1

        Remuneration of approved persons and material risk-takers must be sufficient enough to attract, retain and motivate persons of the quality needed to run the conventional bank licensee successfully, but the conventional bank licensee must avoid paying more than is necessary for that purpose.

        Amended: January 2014
        October 2010

      • HC-5.4.2

        While this Section applies to all approved persons and material risk-takers for the Bahrain operations, the rules on the proportion of fixed and variable remuneration (Paragraph HC-5.4.30) as well as those rules related to the deferral of variable remuneration (Paragraphs HC-5.4.31 and HC-5.4.32) and the obligation to have part of the variable remuneration in shares (Paragraphs HC-5.4.33 and HC-5.4.34) apply only to:

        (a) Approved persons; or
        (b) Material risk-takers

        whose total annual remuneration (including all benefits) is in excess of BD100,000, unless the board of directors requires the application of these Rules to all staff.

        Amended: January 2015
        Amended: July 2014
        Added: January 2014

      • HC-5.4.2A

        The reference to 'Bahrain operations' in Paragraph HC-5.4.2 refers to any activities carried on from an establishment in Bahrain.

        Added: April 2015

      • HC-5.4.3

        All policies for performance-based incentives should be approved by the shareholders, but the approval should be only of the plan itself and not of the grant to specific individuals of benefits under the plan.

        Added: January 2014

      • HC-5.4.3A

        As noted in Sections AU-3.6 and BR-4A.3, the external auditor or a CBB approved consultancy firm must undertake an annual review of the bank's compliance with the remuneration Rules outlined in this Chapter. The results of this review are to be submitted to the CBB within 3 months from the financial year end.

        Amended: July 2015
        Moved from HC-5.4.6 to HC-5.4.3A: January 2015
        Added: January 2014

      • Application to Overseas Conventional Banks

        • HC-5.4.4

          Banks operating as overseas conventional bank licensees in Bahrain must apply the most stringent set of remuneration rules to which they may be subject to. Such rules are:

          (a) The requirements imposed in Bahrain with respect to remuneration as outlined in Volume 1 CBB Rulebook; and
          (b) The requirements imposed by their home supervisor and head office.
          Added: January 2014

      • HC-5.4.5

        [This Paragraph was deleted in January 2015.]

        Deleted: January 2015
        Added: January 2014

      • HC-5.4.6

        [Moved to Paragraph HC-5.4.3A in January 2015.]

        Amended: January 2015
        Added: January 2014

      • Approved Persons in Risk Management, Internal Audit, Operations, Financial Controls, Internal Shari'a Review/Audit, AML and Compliance Functions

        • HC-5.4.7

          The bank's approved persons engaged in risk management, internal audit, operations, financial controls, internal Shari'a review/audit, AML and compliance functions must be independent, have appropriate authority, and be remunerated in a manner that is independent of the business areas they oversee and commensurate with their key role in the bank. Effective independence and appropriate authority of such staff are necessary to preserve the integrity of financial risk and management's influence on incentive remuneration.

          Amended: July 2014
          Added: January 2014

        • HC-5.4.8

          The performance measures of approved persons referred to in Paragraph HC-5.4.7 must be based principally on the achievement of the objectives and targets of their functions.

          Added: January 2014

        • HC-5.4.9

          The mix of fixed and variable remuneration for risk management, internal audit, operations, financial controls, internal Shari'a review/audit, AML and compliance functions personnel must be weighted in favour of fixed remuneration.

          Amended: July 2014
          Added: January 2014

      • Alignment of All Staff Remuneration with Compliance with AML/CFT Requirements

        • HC-5.4.9A

          The performance evaluation and remuneration of senior management and staff of the conventional bank licensees must be based on the achievement of the Key Performance Indicators (KPIs) relevant to ensuring compliance with AML/CFT requirements as specified in Paragraphs FC-2.1.3 and FC-2.1.4.

          Added: April 2020

      • Effective Alignment of Remuneration with Prudent Risk-Taking

        • HC-5.4.10

          Remuneration must be adjusted for all types of risks.

          Added: January 2014

        • HC-5.4.11

          In relation to Paragraph HC-5.4.10, two employees who generate the same short-run profit but take different amounts of risk on behalf of their bank should not be treated the same by the remuneration system.

          Added: January 2014

        • HC-5.4.12

          Both quantitative measures and human judgement must play a role in determining risk adjustments.

          Added: January 2014

        • HC-5.4.13

          Risk adjustments must account for all types of risk, including intangible and other risks such as reputation risk, liquidity risk and the cost of capital.

          Added: January 2014

        • HC-5.4.14

          Banks' remuneration policies and practices must be designed to reduce employees' incentives to take excessive and undue risk.

          Added: January 2014

        • HC-5.4.15

          Remuneration outcomes must be symmetric with risk outcomes.

          Added: January 2014

        • HC-5.4.16

          The mix of cash, equity and other forms of remuneration must be consistent with risk alignment. The mix will vary depending on the employee's position and role and the bank must be able to explain the rationale for its mix to the CBB.

          Added: January 2014

        • HC-5.4.17

          Existing contractual payments related to a termination of employment must be re-examined, and kept in place only if there is a clear basis for concluding that they are aligned with long-term value creation and prudent risk-taking. Prospectively, any such payments must be related to performance achieved over time and designed in a way that does not reward failure.

          Added: January 2014

        • HC-5.4.18

          Banks must ensure that their employees commit themselves not to use personal hedging strategies or remuneration- and liability-related insurance to undermine the risk alignment effects embedded in their remuneration arrangements. Banks must ensure that appropriate compliance mechanisms are in place to monitor their employees commitment in this regard such as signed adherence by staff to the bank's code of ethics which should include the conditions outlined in this Paragraph.

          Added: January 2014

      • Variable Remuneration

        • HC-5.4.19

          Remuneration systems must link the size of the bonus pool to the overall performance of the bank.

          Added: January 2014

        • HC-5.4.20

          Employees' incentive payments must be linked to the contribution of the individual and business to such performance.

          Added: January 2014

        • HC-5.4.21

          As profits and losses of different activities of a bank are realised over different periods of time, remuneration payout schedules must be sensitive to the time horizon of risks and variable remuneration must therefore be deferred accordingly. Variable remuneration must not be finalised over short periods where risks are realised over long periods.

          Added: January 2014

        • HC-5.4.22

          The remuneration committee of the bank must question payouts for income that cannot be realised or whose likelihood of realisation remains uncertain at the time of payout.

          Amended: July 2014
          Added: January 2014

        • HC-5.4.23

          Banks must ensure that total variable remuneration does not limit their ability to strengthen their capital base. The extent to which capital needs to be built up must be a function of a bank's current capital position and its ICAAP.

          Added: January 2014

        • HC-5.4.24

          The size of the variable remuneration pool and its allocation within the bank must take into account the full range of current and potential risks, including:

          (a) The cost and quantity of capital required to support the risks taken;
          (b) The cost and quantity of the liquidity risk assumed in the conduct of business; and
          (c) Consistency with the timing and likelihood of potential future revenues incorporated into current earnings.
          Amended: July 2014
          Added: January 2014

        • HC-5.4.25

          Paragraph HC-5.4.24 focuses on the overall size of the variable remuneration, at the overall bank level, in order to ensure that the recognition and accrual of variable remuneration will not compromise the financial soundness of the bank.

          Added: January 2014

        • HC-5.4.26

          Bonuses must diminish or be deferred in the event of poor bank, divisional or business unit performance.

          Added: January 2014

        • HC-5.4.27

          Subdued or negative financial performance of the bank should generally lead to a considerable contraction of the bank's total variable remuneration, taking into account both current remuneration and reductions in payouts of amounts previously earned, including through malus and clawback arrangements. Recognition of staff who have achieved their targets or better, may take place by way of deferred compensation, which may be paid once the bank's performance improves.

          Added: January 2014

        • HC-5.4.28

          If the bank and/or relevant line of business is incurring losses in any year during the vesting period, any unvested portions must be subject to malus.

          Amended: July 2014
          Added: January 2014

        • HC-5.4.29

          Accrual and deferral of variable remuneration does not oblige the bank to pay the variable remuneration, particularly when the anticipated outcome has not materialised or the bank's financial position does not support such payments.

          Added: January 2014

        • HC-5.4.30

          For approved persons and material risk-takers, other than those covered under Paragraphs HC-5.4.9 and Section HC-5.5, as their actions have a material impact on the risk exposure of the bank:

          (a) An appropriate ratio between the fixed and variable components of total remuneration must be set to ensure that fixed and variable components of total remuneration are appropriately balanced and paid on the basis of individual, business-unit and bank-wide measures that adequately measure performance; and
          (b) The variable proportion of remuneration must increase significantly along with the level of seniority and/or responsibility.
          Amended: October 2016
          Amended: July 2014
          Added: January 2014

        • HC-5.4.30A

          The Level of the fixed component referred to in Subparagraph HC-5.4.30(a) should represent a sufficiently high proportion of the total remuneration to allow the operation of a fully flexible policy on variable remuneration components, including the possibility to pay no variable component.

          Amended: October 2016
          Added: July 2014

        • HC-5.4.31

          For purposes of Paragraph HC-5.4.30:

          (a) At least 40% of the variable remuneration must be payable under deferral arrangements over a period of at least 3 years; and
          (b) For the CEO, his deputies and the other 5 most highly paid business line employees, at least 60% of the variable remuneration must be payable under deferral arrangements over a period of at least 3 years.
          Amended: July 2014
          Added: January 2014

        • HC-5.4.32

          The deferral period referred to under Subparagraph HC-5.4.31(a) must be aligned with the nature of the business, its risks and the activities of the employee in question. Remuneration payable under deferral arrangements should generally vest no faster than on a pro rata basis.

          Added: January 2014

        • HC-5.4.33

          As a minimum, 50% of variable remuneration (including both the deferred and undeferred portions of the variable remuneration) must be awarded in shares or share-linked instruments or where appropriate, other non-cash instruments.

          Added: January 2014

        • HC-5.4.34

          The remaining portion (other than that mentioned under Paragraph HC-5.4.33) of the deferred remuneration can be paid as cash remuneration vested over a minimum 3-year period.

          Added: January 2014

        • HC-5.4.34A

          The only instance where deferred remuneration can be paid out before the end of the vesting period is in the case of the death of the employee where the beneficiaries would receive any unpaid deferred remuneration.

          Added: July 2014

        • HC-5.4.35

          Banks must not provide any form of guaranteed variable remuneration as part of the overall remuneration package. Exceptional minimum variable remuneration must only occur in the context of hiring new staff and limited to the first year.

          Amended: July 2014
          Added: January 2014

      • Remuneration in the Form of Shares or Share-Linked Instruments

        • HC-5.4.36

          Awards in shares or share-linked instruments must be subject to a minimum share retention policy of 6 months from the time the shares are awarded, unless the bank's policy requires a longer period.

          Amended: July 2014
          Added: January 2014

        • HC-5.4.37

          For Bahraini conventional bank licensees, where fixed or variable remuneration include common shares, banks must limit the shares awarded to an annual aggregate limit of 10% of the total issued shares outstanding of the bank, at all times.

          Amended: July 2014
          Added: January 2014

        • HC-5.4.38

          For Bahraini conventional bank licensees, all share incentive plans must be approved by the shareholders.

          Amended: July 2014
          Added: January 2014

      • Remuneration from Projects and Investments

        • HC-5.4.39

          In reference to Paragraph HC-2.2.6, for greater certainty, approved persons are not allowed to take any benefits from any projects or investments which are managed by the conventional bank licensee or promoted to its customers or potential customers except for board related remuneration (declared as per Paragraph HC-2.4.1) linked to their fiduciary duties to the investors of the project/investment. This Rule applies to all approved persons including those appointed as members of the board of special purpose vehicles or other operating companies set up by the conventional bank licensee for projects or investments.

          Added: January 2014

        • HC-5.4.40

          The reference to benefits in Paragraph HC-5.4.39 includes commission, fees, shares, consideration in kind, or other remuneration or incentives in respect of the performance of the project or investment

          Added: January 2014

    • HC-5.5 HC-5.5 Board of Directors' Remuneration

      • HC-5.5.1

        Remuneration of non-executive directors must not include performance-related elements such as grants of shares, share options or other deferred stock-related incentive schemes, bonuses, or pension benefits.

        October 2010

      • HC-5.5.2

        The Board of Directors' remuneration must be capped so that total remuneration is in line with Article 188 of the Company Law, in any financial year and has been approved by the shareholders.

        Amended: April 2015
        Amended: July 2014
        Added: January 2014

      • HC-5.5.3

        If a senior manager is also a director, his remuneration as a senior manager must take into account compensation received in his capacity as a director.

        Added: January 2014

      • HC-5.5.4

        In the years where the bank has not generated any profits it must comply with the approval requirements of Article 188 of the Company Law.

        Added: January 2014

      • HC-5.5.5

        In addition to the requirements of Article 188 of the Company Law, the articles of association regarding remuneration of the board of directors must be in line with the Rules outlined in this Chapter.

        Added: January 2014

    • HC-5.6 HC-5.6 [This Section was deleted and is replaced with requirements contained under Section HC-5.4]

      Deleted: January 2014

      • HC-5.6.1

        [This paragraph was deleted and is replaced with requirements contained under Section HC-5.4]

        Deleted: January 2014

      • HC-5.6.2

        [This paragraph was deleted and is replaced with requirements contained under Section HC-5.4]

        Deleted: January 2014

      • HC-5.6.3

        [This paragraph was deleted and is replaced with requirements contained under Section HC-5.4]

        Deleted: January 2014

      • HC-5.6.4

        [This paragraph was deleted and is replaced with requirements contained under Section HC-5.4]

        Deleted: January 2014

      • HC-5.6.5

        [This paragraph was deleted and is replaced with requirements contained under Section HC-5.4]

        Deleted: January 2014

      • HC-5.6.6

        [This paragraph was deleted and is replaced with requirements contained under Section HC-5.4]

        Deleted: January 2014