4.3 Remuneration Adjustment

Effective from Jan 05 2023 - May 31 2023
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43.	Remuneration system should provide for mechanisms to adjust variable remuneration, including, for instance, through in-year adjustment, and malus or clawback arrangements, which can reduce the variable remuneration after it is awarded or paid. Such mechanisms must be documented in the Bank’s policies and procedures.
44.	The bank's poor financial performance during any period is expected to lead to a decrease in the total variable remuneration, taking into account both current remuneration and reductions in payment previously earned during that period. Banks should submit clear justifications of such decrease to SAMA as support documents along with the compliance report.
45.	Remuneration adjustment should allow banks to adjust remuneration to account for risks that have subsequently occurred, including instances of employee misconduct or material error, material downturn in performance or a material failure of risk management.
46.	Effective policies and procedures must be in place to set indicative criteria and cases that could trigger the use of remuneration adjustment and may result in reductions to variable remuneration regardless of the individual’s performance.
47.	At a minimum, adjustment should occur in the following cases:
	a.	In cases of misconduct that have led to significant loss to the bank, its customers or any party or;
	b.	Where there is fraud, gross negligence or material failure of risk management controls, including violation of internal policies or any related rules or regulation.
48.	Remuneration adjustment policies should take into account, as a minimum, those under review when determining accountability for adverse risk events; the liability or proximity to the misconduct, rank and role, individual’s motivation (e.g. personal gain, malice, fraud, ignorance, lack of training), negligence in exercise of individual’s duties, level of participation in and responsibility for the events under review, history of misconduct, actions that were taken or could have been taken to prevent such events from occurring, including any failures within the bank to internally supervise and oversee staff, and the root cause of the events triggering review.
49.	When deciding the amounts of remuneration to be adjusted, performance and remuneration adjustment policies should take into account all relevant indicators of the severity of impact, which may include the cost of fines and regulatory actions, direct and indirect financial losses and/or the impact on profitability attributable to the relevant failure, any reputational damage, the impact of such events on customers, and costs to redress the events under review.
50.	Where remuneration adjustments are made before the full impact of the risk management failures or misconduct is known, appropriate subsequent adjustments should be made to ensure that the final adjustment fully reflects the impact of the incident or misconduct.
51.	Remuneration adjustment policies should provide that the granting and vesting of all awards made to individuals undergoing internal or external investigation may be frozen until the investigation has concluded and a decision has been made and communicated to the relevant employee(s).
52.	The use of remuneration adjustment should not be limited to those most directly involved and responsible for misconduct, but it should extends beyond them. Specifically, adjustment should be considered for the heads of control functions and for employees in control or direct line of business functions who by virtue of their role could be considered responsible or accountable for the failure or for the weakness in the control framework relevant in the employee misconduct, if such failure or weakness was attributed to lack of due diligence or misuse. Also it should be considered for senior management or members of the Board or relevant committees who, while not directly responsible were either aware, or could have been reasonably expected to be aware due to their seniority or role in the bank, of the failure or misconduct at the time, but failed to take adequate steps to promptly address it.
53.	Remuneration adjustment should be governed by clear procedures that:
	a.	Indicate the authority to approve remuneration adjustment and processes of escalating to human resources, control functions, and senior management and deciding cases that may trigger the use of remuneration adjustment for misconduct.
	b.	Ensure that control functions and human resources, are appropriately involved in the processes of remuneration adjustment, except for those persons who may also fall within the scope of the investigation.
	c.	Make clear the role of discretion in such processes, who is authorized to use such discretion and how such discretion would be appropriately bound by supporting governance and risk management processes.
	d.	Require adequate documentation and rationale of final decisions.
	e.	Ensure transparency by clearly communicating in writing to all affected individuals the value of remuneration adjustments made to variable remuneration and the reasons for such adjustments. That includes noticing the Board or Nomination and Remuneration Committee.