Nepal Rastra Bank (NRB) has introduced a new guideline aimed at controlling excessive increases in salaries, allowances, and benefits of Chief Executive Officers (CEOs) of banks and financial institutions. Through the latest directive issued by the Bank and Financial Institutions Regulation Department, CEO compensation will now be directly linked to the institution’s total assets, employee expenses, and overall financial performance. The move is expected to make compensation structures in the banking sector more transparent, accountable, and performance-oriented.

Under the new framework, the board of directors will remain responsible for approving CEO salaries and benefits, but the process must now follow stricter governance standards. Every bank and financial institution will be required to form a three-member “Salary, Allowance, and Other Benefits Recommendation Committee,” led by an independent director and supported by two additional board members. This committee will evaluate factors such as the CEO’s qualifications, experience, business scale of the institution, return on capital, and the pay gap between junior staff and executive management before making recommendations.

NRB has also placed a cap on performance-based compensation. According to the guideline, performance-related incentives or bonuses for CEOs cannot exceed 20 percent of total compensation. These incentives must be determined based on measurable indicators including profitability, non-performing loans (NPL), capital adequacy, liquidity position, and compliance with regulatory requirements. CEOs who fail to meet agreed performance targets will not be eligible to receive such incentives.

The central bank has introduced tighter controls on executive benefits as well. CEOs will be allowed only one mobile phone, one laptop, and one vehicle during their tenure. Additional administrative expenses such as newspapers, internet, and telephone costs will be limited to a maximum of 0.50 percent of annual salary. Any spending beyond the approved limit may be recovered from the CEO or the officials responsible for approving the expenses.

NRB clarified that existing CEOs who are already under contract before the implementation of this guideline will continue under their current compensation arrangements. However, the new limits and standards will apply immediately to CEOs appointed after the guideline comes into effect.

The regulation will not be mandatory in the same way for institutions declared problematic by NRB, government-owned banks, financial institutions with more than 20 percent foreign ownership, and branches of foreign banks.

With this new policy, Nepal Rastra Bank aims to strengthen governance practices in the banking industry, prevent uncontrolled executive compensation growth, and ensure that leadership rewards remain aligned with the financial health and long-term performance of institutions.

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