Nomination, Remuneration & Governance Committee Terms of Reference

The Nomination and Remuneration Committee is constituted by the Board in its meeting 195/5/2004 dated June 20^th, 2004. A Corporate Governance Committee was formed by the Board at its Meeting No. 246//5/2010 held on 18^th April 2010. At its Meeting No. 252/3/2011 dated 6^th March 2011, the Board decided to merge the Nomination & Remuneration Committee and the Corporate Governance Committee to enhance the Bank’s commitment to adopting good governance practices and in keeping with the requirements/recommendations contained in the  relevant provisions of Central Bank of Bahrain’s Rule Book.

2.1 Purpose: The Nomination and Remuneration Committee is a Board Committee established by the Board of Directors in compliance with the provisions of the Corporate Governance Code and the HC Module of the CBB Rulebook. The purpose of the Committee is:

• To oversee the design of, and recommend to the Board, an overall remuneration policy and philosophy for the Bank that is aligned with its long term business strategy, its business objectives, its risk appetite, values and the long term interests of the Group.
• Advise the Board of Directors on all matters relating to nomination including policy formulation, Board composition, appointments of the Boards of wholly owned subsidiaries and affiliate companies, and executive management succession.
• Advise the Board in ensuring that the Bank and its wholly owned subsidiaries have the appropriate corporate governance standards and practices.

2.2 Definitions: The ‘Bank’ means Bank of Bahrain and Kuwait, ‘BBK Group’ means Bank of Bahrain and Kuwait, its overseas branches and subsidiaries and the ‘Board’ means Bank of Bahrain and Kuwait Board of Directors. The ‘Chairman’ means the Chairman of the Committee. The terms ‘Independent’ and ‘Non-Executive’ have the same meaning as defined under the CBB Rule Book and classified accordingly. ‘Executive Management:’ within the context of this document shall mean to include Group Chief Executive, Deputy Chief Executives, General Managers,, Heads of wholly owned subsidiaries, Heads of Overseas Branches, GM Audit, Group Corporate Secretary and other senior direct reports of the Chief Executive or the Board Committees.

3.1 Membership: Membership will comprise of minimum four members, appointed by the Board of Directors. The Directors would be only ‘independent’ Directors or, alternatively, only non-executive Directors of whom a majority is independent Directors and the Chairman is an independent Director. The members of the Committee can be changed/removed by the Board at any time.

3.2 Tenure: The tenure of the Committee shall be of one year. The tenure of the Director who joins in between would be for the remaining period of the year.

3.3 Meetings: The Committee will meet twice in a year as a minimum. The Chairman may convene a meeting of the Committee at any time on reasonable notice. Participation in the meeting through video / Tele conferencing is permitted in keeping with the provisions of the Board Charter. The meeting would be normally be synchronized with the Board meetings.  Attendance by Proxies is not permitted.

3.3.1. Each Committee member can only attend one Committee meeting via telephone conference or video conference per annum and only one member is allowed to participate via the said means per meeting (on a first apply first serve basis) for scheduled meetings only. However, for unscheduled meetings it will be decided upon on a case by case basis. Further, the level of participation using these means shall be decided upon on a case by case basis during force majeure events.

3.4 Quorum: The quorum shall be of more than half of the members and must include the Chairman or the Deputy Chairman. The decisions/resolutions shall be adopted by simple majority of the participating members.  The Chairman shall not have a casting vote. In the absence of the Chairman and his Deputy, and on exceptional basis, the Committee may meet; however if the quorum is not established then the exceptional issues shall be raised to the Board. The quorum must be achieved thought out the duration of the meeting.

3.5 Chairman/Deputy Chairman: The Chairman/Deputy Chairman would be appointed by the Board or alternatively elected by the members of the Committee.

3.6 Secretary: The Group Corporate Secretary shall be the secretary to the Committee and attend all meetings of the Committee.

3.7 Resources: The Committee will be supported by the Group Corporate Secretary and the Group Chief Officer Human Resources and Administration.

3.8 Minutes: The minutes of the Committee meetings shall be approved by the Committee at the end of each meeting. The final minutes shall be circulated to the members of the Committee not later than 5 working days. The minutes of each meeting will be circulated by the Group Corporate Secretary to all members and additionally to other attendees as appropriate. The Chairman will report  to the Board in writing on the proceedings of Committee meeting following each meeting of the Committee. The minutes will be part of the agenda of the Board under items for information.

3.9 Disclosure: The membership of the Committee, description of its duties and activities and attendance during the year shall be disclosed in the Annual Report and to the shareholders.

3.10 Attendees: Committee members and the Group Corporate Secretary shall attend all Committee meetings.  However, other individuals such as the Group Chief Executive, Deputy Chief Executives and the Group Chief  Officer Human Resources and Administration , and others may be invited to attend for all or part of any meeting as and when appropriate.

3.11 Resolution by Circulation: Any transaction of business of the Committee to be conducted by circulation shall require unanimous approval, allowing three business days following sending the related documents for response. If no response is received within that period the issue shall be considered as approved by the concerned Director. The Corporate Secretary should ensure that the documents related to the proposed resolution are received by all members of the Committee.

3.12 Training: The Committee shall make available to its new members a suitable induction and ongoing training where appropriate, as discussed with the Committee.

3.13 General: The Committee will be guided by provisions under the Memorandum of Association and Articles of Association, Board Charter on matters related to its functioning and not specified in this document.

4.1 The Committee will report on periodic basis to the Board. The Committee’s scope will involve nomination , remuneration and corporate governance issues of the entire BBK Group and its authority extends to all relevant matters relating to the Group.

4.2 The Committee has authority to examine any matters within its responsibilities and to obtain such information as it may require from any Director, member of the Executive Management or employee of the Group.

4.3 The Committee will review its terms of reference every three years following each new term for the Board.

The Chairman is responsible for:

5.1.1 Ensuring Committee meetings are duly convened and that required quorum is present when required.

5.1.2 Approving agenda and related materials for the Committee meetings.

5.1.3 Ensuring that the meetings are conducted in an efficient and effective manner.

5.1.4 Ensuring that the Committee has sufficient information to take decisions.

5.1.5 Providing leadership to the Committee and assisting it in its responsibilities.

5.1.6 Reporting to the Board on deliberations and recommendations of the Committee in writing .

5.1.7 Monitoring functioning of the Committee as per its Terms of Reference.

5.1.8 The Chairman or his Deputy shall be available at the Annual General Meeting to answer questions relating to the Committee’s functions.

Under nomination role, the Committee shall:

5.2.1 Provide recommendations and advise to the Board (for submission to the Shareholders) in addition to the following specific information to be submitted to the shareholders for election or re-election of a Director:

5.2.1.1 The term to be served, which may not exceed three years (but there need not be a limit on reelection for further terms)

5.2.1.2 Biographical details and professional qualifications.

5.2.1.3 In the case of an independent Director, a statement that the Board has determined that the criteria in the CBB rulebook have been met,

5.2.1.4 Any other Directorships held,

5.2.1.5 Particulars of other positions which involve significant time commitments.

5.2.1.6 Details of any relationships between the candidate and the company or its Directors.

5.2.2 Identify and nominate for the approval of the Board of Directors candidates qualified to become members of

5.2.2.1 Board of Directors of the Bank or its wholly owned subsidiaries.

5.2.2.2 Board of Directors of other shareholding companies, subsidiaries or a subsidiary of the Bank’s subsidiaries.

5.2.2.3 Members that will enter the election to represent the Bank in the minority interest.

5.2.2.4 Members of the Executive Management team and approved persons reporting to the Group CE or a Group Chief Officer.

5.2.2.5 Group Corporate Secretary.

5.2.3 Nominations to Head of controlled functions that are reporting directly to Board’s committees shall be recommended by the respective Committee to the Board; however should there be a difference in view between the respective Committee and the Management, the Nomination, Remuneration and Governance Committee’s views can be obtained.

5.2.4 In performing the nomination responsibilities, the Committee shall consider any criteria approved by the Board and such other factors as it deems appropriate in arriving to their final recommendation. These may include judgment, specific skills, experience with other comparable businesses, the relation of a candidate’s experience with that of other Directors, and other factors and interviews by some or all of the Committee members if needed.

5.2.5 Make recommendations to the Board of Directors from time to time as to changes the Committee believes to be desirable to the size of the Board or any Committee of the Board.

5.2.6 Whenever a vacancy arises (including a vacancy resulting from an increase in Board size), the Committee shall recommend to the Board a candidate to fill the vacancy either through appointment by the Board or through Shareholders election.

5.2.7 Review the leadership needs of the Group and its organization structure with a view to ensuring the continued ability of the organization to compete effectively in the market place. This shall also include preparation and review of job descriptions of the Chief Executive and other members of the Executive Management, as well as other necessary qualifications.

5.2.8 Ensure that orderly and timely succession plan is in place to address any unforeseen vacancy within the Executive Management team.

5.2.9 The number of other company boards on which a Director may serve shall be subject to a case-by-case review by the Committee, in order to ensure that each Director is able to devote sufficient time to perform his or her duties as a Director.

5.2.10 The Committee will oversee and manage the annual formal performance evaluation process conducted on Board, its committees and members as per the agreed upon process adopted by the Board of Directors.

Under remuneration role the Committee shall:

5.2.11 Review and recommend remuneration and HR policies for the approval of the Board taking into account the long term business strategy, the Group Values, regulatory requirements, as well as the need to promote effective risk management.  The general framework of the remuneration policies shall be approved by the Shareholders approval.

5.2.12 Liaise as required with the Board Risk Committee and Risk Function in relation to risk adjusted performance measures to confirm that the Remuneration Policy is in line with sound and effective risk management

5.2.13 Approve remuneration amounts; including fixed and variable pay, for members of executive management at the level of “General Manager” and above, the Group Corporate Secretary and heads of controlled functions reporting directly to the Board committees. This shall include hiring salary, exceptional benefits or variable pay and salary increases that exceed the approved total increase matrix or promotion policy. In case of Group Chief Executive, the committee shall raise its recommendation with regards to the above for the approval of the Board of Directors.

5.2.14 Approve the variable pay for the other approved persons and material risk takers per the approved human resources policy.

5.2.15 The remuneration policy should cover the following components:

• Compensation strategy
• Salary & grading structure.
• The specific terms of any performance-related incentive plans including performance share plans, stock options, merit bonus, sales incentive or other deferred-benefit compensation.
• Pension plans and fringe benefits such as non-salary perquisites.
• Retention Schemes.
• Termination policies including any severance payment policies.

The remuneration policy shall also include guidelines to be used for determining remuneration in individual cases, including relative importance of each component and Specific criteria to be used in evaluating the performance of the Executive.

5.2.16 Evaluate the annual performance of the Group Chief Executive in terms of achievements of the corporate goals and objectives. In determining the reward, the Committee shall take into consideration, overall achievement and performance of the Group, Shareholder return relative to comparable companies, the value of rewards to Group CE’s offered by comparable companies, and awards paid to the Group CE in past years.

5.2.17 The Committee shall evaluate the approved persons and material risk-takers’ performance in light of the Bank’s corporate goals, agreed strategy, objectives and business plans and may consider the Bank’s performance and shareholder return relative to comparable conventional banks, the value of awards to GCE at comparable conventional banks, and awards to the GCE in past years.”

5.2.18 Remuneration of both Directors and officers should be sufficient enough to attract, retain and motivate persons of the quality and competency needed to run the company successfully, but the company should avoid paying more than is necessary for that purpose.

5.2.19 Ensure remuneration is adjusted for all types of risks and that the remuneration system takes into consideration employees that earn same short-run profit but take different amount of risk on behalf of the Bank.

5.2.21 The Committee should ensure that for material risk takers, variable remuneration forms a substantial part of their total remuneration.

5.2.22 Review the stress testing and back testing results before approving the total variable remuneration. Carefully evaluate practices by which remuneration is paid for potential future revenues whose timing and likelihood remain uncertain. The Committee will question payouts for income that cannot be realized or whose likelihood of realization remains uncertain at the time of payment.

5.2.23 Ensure that for approved persons in risk management, internal audit, operations, financial controls, AML and compliance functions the mix of fixed and variable remuneration is weighted in favor of fixed remuneration

5.2.24 Recommend Board member remuneration based on their attendance and performance and in compliance with Article 188 or any other relevant articles of the Company Law.

5.2.25 Ensure appropriate compliance mechanisms are in place to ensure that employees commit themselves not to use personal hedging strategies or remuneration-and liability-related insurance to undermine the risk alignment effects embedded in their remuneration arrangements.

5.2.26 Discuss and approve or recommend to the Board the cases relating to Malus and Clawback as appropriate.

Under Corporate Governance role the Committee shall:

5.2.27 Periodically review Bank’s governance practices and relevant issues, including opportunities for improving the governance framework. Monitor Group’s adherence with applicable legal, regulatory and listing requirements relating to Corporate Governance; and make recommendations to the Board as appropriate.

5.2.28 Develop and recommend to the board corporate governance guidelines, and review those guidelines at least once a year

5.2.29 Periodically assess and review the role of the Board and its committees and the methods and processes by which the Board discharges its duties and responsibilities, including the process for the Board’s annual self-evaluation and make recommendations to the Board with respect to such methods and processes.

5.2.30 Advise the Board with respect to significant developments in the law and practice of corporate governance; periodically review and recommend to the Board, the composition of various committees of the Board.

5.2.31 Periodically review the Board Profile and Corporate Governance related policies such as Corporate Governance Framework, Board Charter, Code of Conduct, Conflict of interest, Director’s compensation etc and recommend to the Board such changes as it considers appropriate.

5.2.32 Assess, from time to time, if any third party evaluations, are desirable.

5.2.33 Consider other issues referred to it by the Board or Management.

5.2.34 Ensurethere is a satisfactory induction for new directors with respect to their Board and Board committee responsibilities and ensure that an appropriate ongoing training program is in place in line with market practice. Periodically review the orientation programs for new directors.

5.2.5 Review any material information to be made available to public by the Bank relating to corporate governance; Review corporate governance disclosures for the Annual Report and to be made to the shareholders.

5.2.36 Review the annual Corporate Governance report for the Annual General Meeting.

5.2.37 Meet separately with Senior Management, employees or independent advisers, as deemed necessary by the Committee.

5.2.38 Engage at its discretion professional advisers on issues before the Committee at Bank’s cost.

5.2.39 Conduct a review of the Conflicts of Interest events and review if any disclosures relating to conflicts of interest are to be made public.

The Committee shall be responsible for the following with regards to Directors and the Group Chief Executive training and competency:

5.3.1 Define minimum competency requirements.

5.3.2 Describe the process for monitoring and tracking competencies and skills to ensure that competency levels are attained within the established time frames.

5.3.4 Outline assessment criteria and requirements

5.3.5 Outline training and personal development requirements.

5.3.6 Allocate the CPD training budget.

Determine and confirm whether competency requirements are met.

The Committee will conduct an annual self-assessment of the performance of the Committee/members and report conclusions and recommendations to the Board. The mechanism of evaluation would be as per the evaluation process adopted by the Board for its committees.

The committee shall have the resources and authority necessary for its duties and responsibilities, including the authority to select, retain, terminate and approve the fees of outside legal, consulting or compensation firms used:

• To evaluate the compensation of directors, the CEO or other approved persons, without seeking the approval of the board or management. The Bank shall provide appropriate funding for the compensation of any such persons
• To determining approved persons and material risk-takers’ remuneration, administering remuneration plans, or related matters.
• In any other matters as deemed appropriate by the Committee