News Column

Takeaway: The curious case of a bank CEO’s salary

February 16, 2014

Can a line be drawn between ‘highly paid’ and ‘overpaid’ when it comes to executive compensation?

In the case of top bankers, who are known worldwide for their insanely inflated salaries, how exactly should the monetary value of a CEO be determined?

In an ideal marketplace, the law of supply and demand would seal the remuneration debate once and for all. But according to many, things are so skewed at the top of the banking industry that the issue of executive remuneration cannot be left to the market forces alone.

Speaking to The Expres Tribune, Research Institute of Islamic Banking and Finance Chairman Dr Shahid Hasan Siddiqui said banks exploit depositors in Pakistan by operating like a cartel. “Their combined pre-tax profit in 2001 was roughly Rs1.1 billion, which rose to about Rs185 billion in 2012. But without sharing profits with depositors, their boards of directors have rewarded top managements unjustifiably and increased executive remuneration completely out of proportion,” Siddiqui said.

To prove his point, he cites the example of a foreign bank’s CEO whose take-home salary is more than Rs10 million a month.

According to banks’ annual financial reports for 2012 – the latest year for which detailed data is available – the CEO of Standard Chartered Bank had the highest annual remuneration in the country amounting to Rs143.5 million, up 34.7% from the preceding year when it totalled Rs106.4 million.

The annual remuneration of the Meezan Bank CEO was Rs99.7 million and that of the United Bank CEO was Rs97.9 million in 2012, making them the country’s second and third highest paid banking executives.

The remuneration of MCB Bank – which is the largest Pakistani bank in terms of market capitalisation – in 2012 totalled Rs83.1 million, up a massive 93.7% from 2011 when it equalled Rs42.9 million.

The CEO of Bank Alfalah received a major cut in his pay cheque in 2012. His annual remuneration dropped 38.9% to Rs82.1 million from Rs134.6 million in 2011. Yet, he was the fifth highest paid CEO in the country’s banking industry in 2012.

The highest jump in percentage terms was witnessed in the remuneration of the KASB Bank CEO. His annual remuneration was Rs62 million in 2012, up 203% from the preceding year.

“Banks have been enhancing their profitability only to the benefit of their majority shareholders,” Siddiqui said.

However, citing plain statistics show only one side of the picture, according to professionals serving at the top of Pakistan’s banking industry.

“It’s ridiculous to question why somebody is getting a high salary,” a bank president told The Expres Tribune while requesting that he should not be named. “Bank CEOs sit at the helm of for-profit organisations with assets worth hundreds of millions of rupees. I don’t find it surprising at all that their remuneration is relatively higher than that of their counterparts in other sectors of the economy,” he said.

Noting that only 38 people out of more than 158,000 professionals that the country’s banking sector employed in 2012 held the title of CEO/president, he said shareholders hold executives accountable and can fire them for bad performance.

“We get high salaries because we deserve them. If you pay peanuts, you get monkeys,” he said.

Published in The Expres Tribune, February 17th, 2014.

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Source: Express Tribune (Pakistan)

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