Amendment to Articles 1, 2, and 4 of the Standard on the Payment of Bonuses in Financial Institutions

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Resolution CD-SIBOIF-833-1-MAY9-2014
Dated May 9, 2014
AMENDMENT TO ARTICLES 1, 2, AND 4 OF THE STANDARD ON THE PAYMENT OF BONUSES IN FINANCIAL INSTITUTIONS

The Board of Directors of the Superintendence of Banks and Other Financial Institutions,

CONSIDERING

I

That subsection 8 of Article 40 of Law No. 561, the General Law of Banks, Non-Banking Financial Institutions, and Financial Groups, published in La Gaceta, Official Journal No. 232, of November 30, 2005, (General Law of Banks), establishes that the provisions regulating the corporate governance of financial institutions must include, among others, general salary policies and other benefits for workers.

II

That regarding benefits for workers, and in compliance with the aforementioned legal provision, the boards of directors of financial institutions have issued policies and established procedures for the payment of benefits to their workers under the figure of bonuses or incentives. The primary requirement to access this benefit, according to the law, is that the person must have the status of worker, meaning there must be a labor relationship between them and the financial institution; and secondarily, that they have met the assigned goals. However, some financial institutions, based on their own internal policies, have extended this benefit to their board members, despite not being provided for in the laws regulating their activities, nor is there any labor link between them and the financial institution; a practice that induced the Board of Directors of the Superintendence of Banks and Other Financial Institutions to issue a general standard, the Standard on the Payment of Bonuses in Financial Institutions, contained in Resolution No. CD-SIBOIF-655-2-NOV24-2010, dated November 24, 2010, published in La Gaceta, Official Journal No. 15 of January 25, 2011, with the objective of regulating the payment of this benefit.

III

That although the aforementioned standard establishes methodological procedures to measure and justify the payment of bonuses, it is indispensable to circumscribe it to the law, recognizing this benefit solely and exclusively to the workers of financial institutions defined in this standard, in the interest of the general interest and the stability of the National Financial System.

IV

That regulating the payment of bonuses exclusively to the workers of financial institutions, excluding from the payment of this benefit the members of the Boards of Directors of said institutions, is not only prudent and reasonable, but also enjoys absolute legality, as it stems from the fundamental function that the General Law of Banks, in its current Article 1, establishes for the State, "to watch over the interests of depositors who entrust their funds to financial institutions legally authorized to receive them, as well as to reinforce the security and confidence of the public in said institutions..."; and primarily, in correspondence with the supervisory, auditing, and regulatory function that Article 99 of the Political Constitution of the Republic attributes to the Superintendence of Banks and Other Financial Institutions.

THEREFORE

In accordance with the considerations set forth above, the cited legal provisions, and based on the attribution contained in Article 99 of the Political Constitution, and the powers established in Article 3, subsection 13), and Article 10, clauses 1), 2), and 3) and the final paragraph, of Law No. 316, Law of the Superintendence of Banks and Other Financial Institutions and its reforms.

In exercise of its powers,

HAS ISSUED

The following:

Resolution CD-SIBOIF-833-1-MAY9-2014
AMENDMENT TO ARTICLES 1, 2, AND 4 OF THE STANDARD ON THE PAYMENT OF BONUSES IN FINANCIAL INSTITUTIONS

FIRST: Articles 1, 2, and 4 of the Standard on the Payment of Bonuses in Financial Institutions, contained in Resolution No. CD-SIBOIF-655-2-NOV24-2010, dated November 24, 2010, published in La Gaceta, Official Journal No. 15 of January 25, 2011, and its reforms contained in Resolution No. CD-SIBOIF-667-1-MAR2-2011, published in La Gaceta, Official Journal No. 98, of May 30, 2011, shall be amended, and shall read as follows:

"Art. 1. Concepts.- For the purposes of applying the provisions contained in this standard, the concepts indicated in this article, both in uppercase and lowercase, singular or plural, shall have the following meanings:

a) Bonus: Ordinary payments in cash, shares, or options, in addition to the worker's salary or remuneration, as a result of performance through the achievement of pre-established goals or objectives. Bonuses do not include commissions paid to stockbrokers or other perks, such as: payments for health and life insurance, vehicle allocation, memberships, payment for children's education, among others.

b) Workers: Those natural persons who maintain a labor relationship with the financial institution, who hold the positions of chief executive (Chief Executive Officer, General Manager, or their equivalents) and persons at the next hierarchical level (Deputy General Manager, Manager, or Deputy Area Manager, or their equivalents). This definition excludes branch managers and those who do not take risks, such as those in charge of risk management, compliance functions, auditing, administration, and operations.

c) Financial institution: Banks and non-banking financial institutions subject to the supervision of the Superintendence of Banks and Other Financial Institutions.

d) Superintendence: Superintendence of Banks and Other Financial Institutions.

e) Superintendent: Superintendent of Banks and Other Financial Institutions.

Art. 2. Object and Scope.- The object of this standard is to promote prudential bonus practices in financial institutions, with the aim that these use appropriate economic incentives that do not increase the institution's risk profile.

The provisions of this standard are applicable to the members of the boards of directors and workers of financial institutions.

Art. 4. Minimum Content of Bonus Policies.- The bonus policies referred to in the previous article shall contain, at least, the aspects to be indicated below and shall be applied at the individual and financial group level:

a) The decision-making process used to determine the bonus policy; indicating that, the bonuses of workers must be approved by the board of directors.

Workers may access bonuses once a year, in consideration of their contributions and individual performance in the exercise of their position according to the parameters established in this standard.

The payment of bonuses to the workers referred to in this standard must be made, if applicable, once the financial statements of the financial institution have been audited and sanctioned by the Superintendent.

The payment of bonuses to the members of the boards of directors of financial institutions is prohibited, as well as the use or implementation of other figures or modalities that aim to pay benefits to the members of said boards, who shall only have the right to the profits corresponding to them, if any, to the allowances and remunerations for their participation in board meetings, and to the remunerations received for their work in the internal committees in which they participate.

The criteria used to evaluate and measure performance and its risk adjustment shall contemplate, among others, the following:

i. The cost of capital required to support the risks assumed, from the point of view of the evaluation of profitability of equity;

ii. The evolution of asset quality over time and not only regarding aspects related to their placement;

iii. The cost of liquidity assumed in the development of the business or activity, from the point of view of the evaluation of the financial margin; and

iv. The evaluation of the profitability of assets, from the point of view of their evolution over time, in accordance with the goals established in operational plans.

b) Bonuses must be paid according to performance and the achievement of the global goals of the institution, the business unit in particular, and the individual goals of the worker.

c) The link between payment and performance.

d) Express prohibition of guaranteed bonuses, as these are not consistent with prudential risk management practices or the principle of payment for performance.

e) Policy of deferral in the payment of bonuses and granting criteria, in cases where this form of payment is necessary to align the payment of the bonus with the nature of the business, its risks, and the activities of the worker in question; as well as to create incentives aligned with long-term value creation and risk time horizons.

f) The parameters used to pay the bonus, whether in cash, shares, or options.

g) Bonuses must be sensitive to the worker's non-financial performance aspects. Misconduct (particularly unethical behavior and lack of compliance) must be sufficient to discredit good financial performance and reduce the bonus.

h) Both performance measures and risk adjustments must be adjusted to the level and responsibilities and to the compensation approach used.

The board of directors is obliged to request from the general management a report on the bonuses paid.

Likewise, the board of directors must present to the shareholders' assembly, in the annual report, a detail of the aspects indicated above."

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SECOND: This standard shall enter into force upon its notification, without prejudice to its subsequent publication in La Gaceta, Official Journal, or in a written medium of wide national circulation.

(f) illegible (Sara Amelia Rosales Castellón) (f) V. Urcuyo V. (f) Gabriel Pasos Lacayo (f) F. Reyes B. (f) illegible (Silvio Moisés Casco Marenco) (f) illegible (Freddy Blandón Argeñal) (f) U. Cerna B.

URIEL CERNA BARQUERO

Secretary of the Board of Directors SIBOIF