China

Has the regulator implemented rules in relation to remuneration paid by banks to its staff?

Yes, the China Banking Regulatory Commission (CBRC) has implemented rules governing remuneration paid by banks to their staff.

CBRC issued the Supervisory Guidelines for Stabilizing the Remuneration of Commercial Banks in 2010 (Remuneration Guidelines), specifically regulating the remuneration system of commercial banks. In July 2013, CBRC further consolidated regulations applicable to various types of commercial banks in respect of corporate governance into the unified Guidelines on the Corporate Governance of Commercial Banks (Corporate Governance Guidelines), which also set out some general requirements in respect of the remuneration mechanisms of commercial banks.

The Remuneration Guidelines and the Corporate Governance Guidelines introduced general principles and detailed implementation standards in respect of the remuneration practices of commercial banks registered in the People’s Republic of China (PRC or China).

For the purpose of this note, PRC or China excludes Hong Kong and Macau Special Administrative Regions and Taiwan.

What categories of staff are caught by the regulator’s rules?

Both the Remuneration Guidelines and the Corporate Governance Guidelines are applicable to all employees of commercial banks.

The Remuneration Guidelines provide for the categories of remuneration and their application to different level of employees, such as ordinary bank employees, chief responsible personnel of various departments, senior management personnel, and employees who may have a material impact on bank’s risk profile etc.

The Corporate Governance Guidelines set out, in addition to general remuneration mechanisms of senior management personnel and ordinary employees, remuneration requirements applicable to directors and supervisors.

What are the key regulatory rules?

Key requirements under the Remuneration Guidelines are summarized as follows:

Remuneration structure

Remuneration of a bank employee may include three components, i.e. fixed salary (also known as basic salary), variable salary and welfare benefits. The basic salary shall be generally not higher than 35% of the total amount of remuneration. Variable remuneration includes performance-based remuneration and medium/long term incentives. Performance-based remuneration of a bank’s chief officer shall generally not exceed three times of his/her basic salary. Welfare benefits are paid subject to statutory requirements.

Payment of remuneration and possible clawback

Basic salary and certain proportion of performance-based remuneration are paid on a monthly basis. The rest of performance-based remuneration is paid according to the performance results reviewed on an annual basis. Subject to approval of board of directors of a bank, medium/long term incentives are paid upon the expiry of the agreed lock-up period (which, depending on the level of risks concerned, will be at least three years).

Payment of 40% or more of the performance-based remuneration to the senior management personnel and employees who may have a material impact on bank’s risk profile shall be deferred for no less than three years.

A commercial bank shall also put in place policies on possible clawback and/or suspension of payment of certain performance-based remuneration, in order to deal with exceptional risks arising from the operation.

The Remuneration Guidelines also set forth detailed rules in respect of remuneration management, including but not limited to, the requirements on establishment of a remuneration management committee under the board of directors, annual audit of the remuneration mechanism, preparation of remuneration management policies and performance-based assessment mechanisms, and relevant disclosure requirements.

The Corporate Governance Guidelines further set forth some specific remuneration requirements applicable to directors and supervisors. For example,

the board of supervisors shall have the rights to supervise the reasonableness of the overall remuneration policy of a commercial bank and the remuneration plans of senior management personnel; and
the remuneration of directors and supervisors shall be approved by the shareholders’ meeting of the commercial bank concerned.

Are bonuses subject to the regulator’s rules?

Yes. Please refer to answers to Question 3 above in respect of the basic requirements regarding performance-based remuneration.

In addition, a commercial bank shall also make payment of performance-based remuneration in accordance with a well-established system containing various performance review indicators, e.g. economic return, risk control, and social responsibility. Such performance review system must be filed with CBRC annually.

What is the position concerning role based allowances?

Other than the various principles and requirements mentioned in our answers to Question 3 above, no other laws or regulations set out specific rules on role-based allowance. All employees who have entered into employment contracts with commercial banks are subject to the requirements under the Remuneration Guidelines, although the exact amount of remuneration of an employee could be different from others depending on the positions and working responsibilities of the employees.

Directors and supervisors are not employees of banks and thus not subject to the general remuneration scheme applicable to the employees of banks. Remuneration of directors and supervisors of a bank shall be determined by the shareholders’ meeting.

Do the regulator’s rules on remuneration have extraterritorial effect?

PRC law does not expressly address this point. However, according to the Remuneration Guidelines, a commercial bank generally has the rights to manage the remuneration policies of its branches or subsidiaries which are incorporated outside of China, in accordance with the principles contained in the Remuneration Guidelines, and by taking into account any local laws and regulations.

Do you anticipate further reform in this area?

Most recently, the State Council of China issued the Reform Plan on Remuneration Policies Applicable to Chief Responsible Persons of State-owned Enterprises (Reform Plan), which is anticipated to be further implemented by more detailed rules in the near future.

The Reform Plan may have an impact on remuneration policies of senior management personnel (such as chairman of the board, general manager/president, chairman of the supervisory board etc.) of state-owned banks, while foreign-invested banks or private banks may not be affected.

Must an institution’s remuneration policy be disclosed to the regulator?

Yes, board of directors of a commercial bank must disclose the remuneration management information in its annual remuneration report, and file such disclosure with CBRC. Information required by such annual remuneration report mainly includes:

remuneration management structure and decision-making procedures, including structure of the remuneration committee and its authority;
total amount, beneficiaries and allocation of annual remuneration of a commercial bank;
criteria used for aligning remuneration with performance and risk management;
policies and arrangements of deferred and no-cash remuneration (including possible clawback);
detailed information of remuneration of directors, supervisors, senior management personnel and employees who may have a material impact on the risk management of a commercial bank;
information in respect of the preparation and filing of annual remuneration plan and the results of profitability, risk and social responsibility assessment; and
information in respect of the exceptions to the original remuneration plan.