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14 January 2011
On December 1 2010 the government adopted a regulation on remuneration arrangements in banks and other financial institutions. The regulation entered into force on January 1 2011.
The regulation brings the rules further into line with the regulations in other EU/European Economic Area member states and is to some extent more flexible than the rules originally proposed by Norwegian financial regulatory body Finanstilsynet earlier in 2010.
The regulation lays down guidelines to enable financial institutions to put in place a remuneration arrangement valid for the entire institution which will:
The boards of directors of such institutions are responsible for adopting and implementing rules, guidelines and limits for remuneration arrangements, which shall be applicable to the entire institution and its subsidiaries. The arrangements shall contain particular rules for senior management, directors and other officers carrying out important work regarding the institution's risk exposure, and for directors and officers with responsibility for control matters.
The remuneration arrangement must be in line with the business goals of the institution, its risk tolerance requirements and other long-term interests. The arrangement shall be reviewed by independent control functions at least once a year and the institution shall produce a written report on such review each year.
The remuneration arrangement shall define the employees who are considered to be senior management, officers with work important to the institution's risk exposures and officers with control tasks. The institution shall make public the remuneration arrangements. Institutions with more than 50 employees or with capital of more than Nkr50 billion must set up a remuneration board elected by the board of directors.
For senior management, the mix of fixed and variable remuneration shall be balanced. The fixed part of the remuneration shall be high enough that the institution may omit to pay the variable part of the remuneration. For the chief executive officer and other members of senior management, the variable part of the remuneration may not constitute more than 50% of the fixed part of the remuneration. A guaranteed variable remuneration can be offered only in special cases in connection with new hirings and shall be limited to the first year of employment.
Any variable remuneration shall be based on an assessment of the person in question, the relevant business unit and the institution as a whole. When measuring results, the risk taking of the institution and the costs connected to use of capital and liquidity shall be taken into account. Any variable remuneration connected to the results of the institution shall be based on a period of at least two years.
At least 50% of an annual variable remuneration shall consist of shares or other equity instruments issued by the institution or another company within the group of companies, or of contingent capital mirroring the change in the institution's market value. Such part of the remuneration may not be managed freely by the individual, but shall be apportioned over a period of at least three years. Such period shall take into account the institution's underlying developments and the risk taking of the institution. The variable remuneration shall be reduced if the institution's results are negative. The aggregate variable remuneration within the institution shall not limit the ability of the institution to strengthen its capital. Any remuneration in connection with a termination of employment shall be adjusted to the results that had been achieved over time; a lack of results shall not be rewarded.
For further information on this topic please contact Paul Sveinsson at Arntzen de Besche Advokatfirma AS by telephone (+47 23 89 40 00), fax (+47 23 89 40 01) or email (email@example.com).
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