Resolution CMN No. 3921 — Governs the remuneration policy for administrators of financial institutions and other institutions authorized to operate by the Central Bank of Brazil

RESOLUTION NO. 003921

Governs the remuneration policy for administrators of financial institutions and other institutions authorized to operate by the Central Bank of Brazil.

The Central Bank of Brazil, in accordance with Article 9 of Law No. 4,595, of December 31, 1964, makes public that the National Monetary Council, in a session held on November 25, 2010, based on Article 4, item VIII, of the aforementioned law,

RESOLVED:

Article 1. Financial institutions and other institutions authorized to operate by the Central Bank of Brazil, excluding credit cooperatives and microentrepreneur and small business credit societies, must implement and maintain an administrator remuneration policy in accordance with the provisions of this resolution.

§ 1. The provisions of this resolution do not apply to consortium administrators, which shall follow the regulations issued by the Central Bank of Brazil in the exercise of its legal competence.

§ 2. For the purposes of this resolution, the following are considered:

I - administrators:

a) statutory directors and members of the board of directors of corporations; and

b) administrators of limited liability companies;

II - remuneration: the payment made in cash, shares, share-based instruments, and other assets, in return for the work performed for the institution by administrators, comprising fixed remuneration, represented by salaries, fees, and commissions, and variable remuneration, consisting of bonuses, profit-sharing in the form of § 1 of Article 152 of Law No. 6,404, of December 15, 1976, and other incentives associated with performance.

Remuneration Policy

Article 2. The administrator remuneration policy must be compatible with the risk management policy and be formulated in a manner that does not incentivize behaviors that increase exposure to risk above levels considered prudent in the short, medium, and long-term strategies adopted by the institution.

Article 3. The remuneration of administrators in internal control and risk management areas must be adequate to attract qualified and experienced professionals and must be determined independently of the performance of business units, so as not to generate conflicts of interest.

Sole paragraph. The performance measures for administrators in internal control and risk management areas must be based on the achievement of the objectives of their own functions and not on the performance of the units they control or evaluate.

Article 4. Institutions that make payments as variable remuneration to their administrators must take into account, regarding the global amount and allocation of remuneration, the following factors, among others:

I - current and potential risks;

II - the overall result of the institution, particularly the realized recurring profit;

III - the institution's capacity to generate cash flows;

IV - the economic environment in which the institution is embedded and its trends; and

V - the sustainable long-term financial bases and adjustments in future payments based on assumed risks, fluctuations in the cost of capital, and liquidity projections.

Sole paragraph. For the purposes of this resolution, realized recurring profit is considered the accounting net profit of the period adjusted by unrealized results and free from the effects of non-recurring events controlled by the institution.

Article 5. In the payment of variable remuneration to administrators, the following criteria must be considered, at a minimum:

I - individual performance;

II - the performance of the business unit;

III - the performance of the institution as a whole; and

IV - the relationship between the performances mentioned in items I, II, and III and the risks assumed.

Article 6. Variable remuneration may be paid in cash, shares, share-based instruments, or other assets, in a proportion that takes into account the level of responsibility and the administrator's activity.

§ 1. At least 50% (fifty percent) of the variable remuneration must be paid in shares or share-based instruments, compatible with long-term value creation and the risk time horizon.

§ 2. The shares, share-based instruments, or other assets used for the payment of the remuneration referred to in the caput must be valued at fair value.

§ 3. For institutions that do not have shares traded on the market and do not issue share-based instruments, the payments referred to in § 1 must be based on the variation in the book value of their equity, free from the effects of transactions with owners.

Article 7. At least 40% (forty percent) of the variable remuneration must be deferred for future payment, increasing with the level of the administrator's responsibility.

§ 1. The deferral period must be at least three years, established based on the risks and the administrator's activity.

§ 2. Payments must be made in a staggered manner in installments proportional to the deferral period.

§ 3. In the event of a significant reduction in realized recurring profit or the occurrence of a negative result for the institution or business unit during the deferral period, the deferred installments not yet paid must be reversed proportionally to the reduction in the result.

Article 8. Contracts with clauses for payments exceeding those provided in legislation, linked to the dismissal of administrators, must be compatible with value creation and long-term risk management.

Article 9. The guarantee of payment of a minimum value of bonuses or other incentives to administrators may only occur on an exceptional basis, upon hiring or transfer of administrators to another area, city, or company within the same conglomerate, limited to the first year after the event giving rise to the guarantee.

Article 10. The board of directors is responsible for the administrator remuneration policy, and must supervise the planning, implementation, control, and review of the aforementioned policy.

Remuneration Committee

Article 11. Financial institutions and other institutions authorized to operate by the Central Bank of Brazil, which operate in the form of a public company or are required to establish an audit committee in accordance with current regulations, must establish, by the date of the first general assembly or meeting of partners occurring after January 1, 2012, an organizational component called a remuneration committee.

§ 1. The provisions of the caput apply to the institutions referred to in Article 1 that are part of a financial conglomerate integrated by an institution operating in the form of a public company or required to establish an audit committee in accordance with current regulations.

§ 2. The institutions referred to in Article 1 that come to meet the requirements for establishing the remuneration committee after January 1, 2012, must establish it by April 30 of the year following the year the requirements were met.

§ 3. The extinction of the remuneration committee may only occur if:

I - the institution ceases to present the conditions contained in the caput and § 1 of this article; and

II - the committee fulfills its duties regarding the fiscal years in which its operation was required.

§ 4. The Central Bank of Brazil may determine the reconstitution of the remuneration committee in exceptional situations, provided they are duly justified.

Article 12. Financial conglomerates may establish a single remuneration committee, through the leading institutions, to fulfill the duties and responsibilities provided in this resolution, regarding the institutions that compose them.

Sole paragraph. Exercising the option provided in the caput, the institutions that are part of the conglomerate must each ratify the decision at the first general assembly they hold or the first corporate act resulting in an alteration of the articles of association.

Article 13. The remuneration committee must:

I - report directly to the board of directors;

II - be composed of at least three members, with a fixed term, prohibiting a member from remaining on the committee for a period exceeding ten years;

III - have at least one non-administrator member in its composition; and

IV - have members in its composition with the qualifications and experience necessary to exercise competent and independent judgment on the institution's remuneration policy, including the repercussions of this policy on risk management.

§ 1. The number of members, the criteria for appointment, dismissal, and remuneration, the term of office, and the duties of the remuneration committee must be stated in the institution's articles of association or bylaws.

§ 2. After the maximum term provided in item II of the caput has elapsed, the remuneration committee member may only return to integrate such body in the same institution after at least three years have passed.

§ 3. It is the responsibility of the institution's board of directors to ensure that the members of the remuneration committee meet the requirements established by this resolution.

Article 14. The responsibilities of the remuneration committee, in addition to those established in the institution's articles of association or bylaws, include:

I - to elaborate the administrator remuneration policy of the institution, proposing to the board of directors the various forms of fixed and variable remuneration, as well as special recruitment and dismissal benefits and programs;

II - to supervise the implementation and operation of the administrator remuneration policy of the institution;

III - to annually review the administrator remuneration policy of the institution, recommending to the board of directors its correction or improvement;

IV - to propose to the board of directors the total amount of administrator remuneration to be submitted to the general assembly, in the form of Article 152 of Law No. 6,404, of 1976;

V - to evaluate future scenarios, internal and external, and their possible impacts on the administrator remuneration policy;

VI - to analyze the administrator remuneration policy of the institution in relation to market practices, with a view to identifying significant discrepancies in relation to similar companies, proposing necessary adjustments; and

VII - to ensure that the administrator remuneration policy is permanently compatible with the risk management policy, with the institution's current and expected financial goals and situation, and with the provisions of this resolution.

Article 15. The remuneration committee must prepare, annually, within ninety days relative to the base date of December 31, a document called the "Remuneration Committee Report," containing, at a minimum, the following information:

I - description of the composition and duties of the remuneration committee;

II - activities performed within the scope of its duties during the period;

III - description of the decision-making process adopted to establish the remuneration policy;

IV - main characteristics of the remuneration policy, covering the criteria used for performance measurement and risk adjustment, the relationship between remuneration and performance, the remuneration deferral policy, and the parameters used to determine the percentage of remuneration in cash and other forms of remuneration;

V - description of modifications to the remun policy made during the period and their implications on the institution's risk profile and on administrators' behavior regarding risk assumption; and

VI - consolidated quantitative information on the administrator remuneration structure, indicating:

a) the annual remuneration amount, separated into fixed and variable remuneration and the number of beneficiaries;

b) the amount of benefits granted and the number of beneficiaries;

c) the amount and form of variable remuneration, separated into cash remuneration, shares, share-based instruments, and others;

d) the amount of remuneration deferred for payment in the year, separated into paid remuneration and reduced remuneration due to adjustments in the institution's performance;

e) the amount of payments related to the recruitment of new administrators and the number of beneficiaries;

f) the amount of payments related to dismissals made during the year, the number of beneficiaries, and the largest payment made to a single person; and

g) the percentages of fixed remuneration, variable remuneration, and benefits granted, calculated in relation to the period's profit and equity.

§ 1. The institution must keep the document referred to in the caput of this article available to the Central Bank of Brazil for a minimum period of five years.

§ 2. The Central Bank of Brazil, within the scope of its duties, may request additional information beyond that provided in items I to VI of the caput of this article.

§ 3. Exercising the option provided in Article 12, the Remuneration Committee Report must present the information defined in the caput of this article for each of the entities in the conglomerate.

Article 16. The institutions mentioned in Article 1 that are not required to establish a remuneration committee must prepare an annual report, within ninety days relative to the base date of December 31, containing, at a minimum, the information indicated in items III and IV of Article 15.

Sole paragraph. The document referred to in the caput must be kept available to the Central Bank of Brazil for a minimum period of five years.

General Provisions

Article 17. The Central Bank of Brazil may request, at any time, that the institution demonstrate that the incentives provided within its administrator remuneration system adequately take into account risk management, capital adequacy, and liquidity aspects.

Article 18. The Central Bank of Brazil may determine the necessary measures to compensate for any additional risk resulting from the inadequacy of the administrator remuneration policy implemented by the entity, including the review of the aforementioned policy or the increase in capital requirements.

Article 19. In the case of institutions that do not have a board of directors, the references in this resolution to that board must be understood as referring to the institution's executive board.

Article 20. The Central Bank of Brazil is authorized to issue complementary regulations and adopt the measures necessary for the compliance with this resolution.

Article 21. This resolution enters into force on the date of its publication, producing effects from January 1, 2012.

São Paulo, November 25, 2010.

Henrique de Campos Meirelles
President