Guidelines on Remuneration Policies and Disclosure Requirements

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ශ්‍රී ලංකා මහ බැංකුව இலங்கை மத்திய வங்கி CENTRAL BANK OF SRI LANKA

දෙපාර්තමේන්තු අධ්‍යක්ෂක දෙපාර්තමේන්තුව DEPARTMENT OF SUPERVISION OF NON-BANK FINANCIAL INSTITUTIONS

අංක 30, ජනාධිපති මාවත, කොළඹ 01, ශ්‍රී ලංකාව No. 30, Janadhipathi Mawatha, Colombo 01, Sri Lanka

Ref: 24/01/015/0004/025

23 October 2024

Chairpersons All Finance Companies

Dear Sir/Madam

Guidelines on Remuneration Policies and Disclosure Requirements

We enclose herewith the Guidelines on Remuneration Policies and Disclosure Requirements with reference to the Finance Business Act (Corporate Governance) Direction No.05 of 2021, applicable to all finance companies (FCs).

Hereby, all FCs are requested to communicate the attached guidelines to all the relevant officers and comply with the requirements as specified in the guidelines.

Yours faithfully,

(Mrs.) R M C H K Jayasinghe Director

Cc: Chief Executive Officers of FCs

Encl: The Guidelines on Remuneration Policies and Disclosure Requirements

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Guidelines on Remuneration Policies and Disclosure Requirements

1. Objective of the Guidelines These guidelines are issued with the objective of improving consistency, fairness and transparency in remunerating the directors and senior management of Finance Companies (FCs) licensed under the Finance Business Act, No. 42 of 2011, with reference to the Finance Business Act (Corporate Governance) Direction No.05 of 2021.

2. Applicability These guidelines shall be applicable to all FCs, effective from the financial year 2025/26.

3. Requirements on the level and mix of remuneration 3.1. The level of remuneration shall be appropriate to attract, retain and motivate the qualified/ experienced/competent directors and senior management required to operate a FC successfully, while avoiding remunerating them excessively. 3.2. All payments to directors and senior management shall be extended on an arm’s length basis. 3.3. The remuneration for Executive Directors (EDs) and senior management shall be based on the performance of the FC and the individual contribution towards such performance. Accordingly, a significant and an appropriate proportion of remuneration of EDs and senior management may consist of a fixed proportion, i.e. basic salary and/or fixed allowances. (i) In determining the performance-based remuneration of EDs and senior management, FCs shall use a ‘performance criteria matrix’ which adequately considers both financial and non-financial factors, consistent with the long-term objectives and financial soundness of the FC. (a) Financial factors – Measures shall be selected to incentivise the achievement of financial targets as per the strategic priorities of the FC. (b) Non-financial factors – Measures shall be chosen to ensure accountability for effective risk management, adherence to the FC’s code of conduct and ethics, degree of compliance with laws and regulations, fair treatment of customers, promoting sustainable finance and other measures that support the delivery of the FC’s strategic priorities.

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(c) The performance targets set out in the performance criteria matrix shall be clearly communicated to the relevant EDs and senior management at the beginning of the performance measurement period. (d) Human Resource and Remuneration Committee shall review the performance of the EDs and senior management (excluding chief internal auditor, compliance officer and chief risk officer) against the set performance targets. (ii) The fixed proportion of the remuneration (basic salary and fixed allowances) shall be determined with due consideration to the qualifications, experience, level of competencies, skills, roles and responsibilities of each ED and senior management. (iii) In terms of the Finance Business Act (Corporate Governance) Direction No.05 of 2021, EDs are employees of the FCs, and therefore, payment of board and sub-committee sitting fees for EDs shall be disallowed. 3.4. In determining the remuneration (fees and allowances structure) for Non-Executive Directors (NEDs), FCs shall take into account factors such as qualifications, experiences, effort and time spent to effectively contribute to the decision-making process of FC, and responsibilities of such directors. NEDs should not be paid any payments other than the board and sub-committee sitting fees, and a fixed transport allowance if required, paid in monetary terms. 3.5. The directors and senior management who retired or resigned from the services or removed from such positions shall not be paid with any form of remuneration by the FC with effect from the respective dates.

4. Requirements on disclosure of remuneration to directors and senior management 4.1. The disclosure in the annual report through the statement on remuneration policy shall be comprehensive to provide sufficient information to shareholders and other stakeholders. This shall include the description of the factors determining remuneration and there shall be a clear distinction between remuneration mechanisms for EDs and NEDs. 4.2. The FC shall disclose in the annual report information regarding all forms of remuneration paid in monetary terms and non-monetary benefits provided for the services rendered, which includes salaries, board and sub-committee sitting fees, fixed and variable allowances, bonuses, reimbursed expenses, other monetary benefits paid, and non-monetary benefits provided by the FC to its directors and senior management.

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4.3. The FC shall disclose the aggregate values of remuneration paid to its directors and senior management, separately, in its annual report with the breakdown as shown in Table 1 and Table 2, below.

Table 1 – Aggregate Remuneration paid to Directors¹

Form of Remuneration	Amount (Rs.’000)
Basic Salary
Board and sub-committee sitting fees
Fixed allowances
Variable allowances
Bonuses
Reimbursed expenses
Other monetary benefits (if any)
Non-monetary benefits (converted into monetary terms)
Total remuneration paid to directors

¹ If the Chief Executive Officer (CEO) is an ED, CEO’s remuneration details shall be aggregated with the remuneration of directors and excluded from aggregate remuneration of senior management.

Table 2 – Aggregate Remuneration paid to Senior Management

Form of Remuneration	Amount (Rs.’000)
Basic Salary
Fixed allowances
Variable allowances
Bonuses
Reimbursed expenses
Other monetary benefits (if any)
Non-monetary benefits (converted into monetary terms)
Total remuneration paid to senior management