Are bank board members overpaid?

The amount of money board members can be paid was a major issue discussed at a financial good governance conference held on Monday August 22 between the National Bank of Ethiopia (NBE) and leaders of the financial sector.

The conference was organized by NBE, which regulates banks in Ethiopia, and the International Finance Corporation (IFC), the World Bank’s private wing.

The financial institutions were represented by top managers. They stressed that resolving this issue was a key to implementing good governance.

Board members have recently been getting a high amount of remuneration for serving on boards of banks. As a result unscrupulous behavior during board elections has often occurred. This has led to controversy at some large banks. As a result in January 2011 the Central Bank imposed a directive in January 2011 that specified the remuneration amount.

The NBE Directive no. SBB/49/2011 sub article 4.1 states that annual board compensation to a director shall not exceed 50,000 birr.

Previously, compensation from annual profits was approved by the general assembly. Remuneration was composed of a percentage from the profit, and board members often secured a large sum because they were part of the board.

According to the directive, “monthly allowance to a director shall not exceed 2,000 birr.”

During the discussion at the Hilton Hotel, bankers said high compensation for board members is crucial to expanding the financial sector.

One of the financial firm leaders, who did not want  to be quoted, told Capital that remuneration would not be a major issue discussed at the conference.

The bankers argued that the remuneration has to be suitable for the position and the directive has to change. “It is a competitive market that needs skilled leadership with attractive compensation,” bankers told Capital.

“In my opinion commitment should be a big issue for the implementation of good governance, meanwhile remuneration should attract  professionals into banking leadership,” he added.

One of the participants said that before the SBB/49/2011 directive there was not good governance in the sector but that it has settled since the implementation of the directive.

During  the meeting the implementation of good governance from the root should be undertaken first before forcing actors to comply.

The central bank has to apply the good governance issues before it insists financial firms do it.

It has to look at itself in terms of the implementation of good governance on the institution, according to participants.

“Some of the measures from NBE look like micro management,” participants said.

“The regulatory body is taking actions when it observes problems in the financial firms, for instance the board of directors remuneration directive issued when NBE observed problems in the case,” experts said.

Experts that Capital interviewed also remembered the latest first come first serve directive that imposed a hard currency allocation for customers. The central bank applied the directive when it thought that the LC business was being abused by the bankers.

“The regulatory body has to be proactive in the leadership of the financial firms, but the current measures are reactive,” experts added.

Getahun Nana, Vice Governor for Financial Institutions Supervision at NBE, argued that the NBE has to take reactive measures rather than refusing to solve problems in the sector. “It is  better if we take proactive measures but for the sector health we have also take reactive measures,” he said.

NBE issued a corporate governance directive a year ago to strictly regulate the financial sector.

222 thoughts on “Are bank board members overpaid?

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