Chandan Sapkota’s Blog

My latest piece is about the issue of capping executive pay and compensation in Nepal. The central bank or investment company and Ministry of Finance are arguing for a cover on executive’s pay. The executives vehemently oppose it. Well, I believe the answer differs depending on if we look this matter from strictly business or societal perspectives. The issues I raise here is that it’s not the central bank’s principle mandates to cap executive’s pay.

It should rather make an effort to satisfy its unfulfilled mandates. Could it be NRB’s job to cover pay of professionals? The Nepal Rastra Bank (NRB) has locked horns with the financial sector over the recent capping of professionals’ pay. The central bank or investment company wants to suppress executives pay, however the professionals vehemently oppose that idea.

All over the world, the unwanted fat salary of executives have been the main topic of controversy for quite some right time now. It gained steam following a EU and the united states governments’ decision to cap executives’ compensation of institutions bailed out by taxpayers through the global financial meltdown. This financial interventionist trend was found by the developing countries as well.

Hence, we are witnessing the same taking place in Nepal. Amidst all the populist rant, it ought to be understood that NRB is stepping on the turf where it traditionally has not. This job is not within its concept mandate also, i.e. to maintain “price stability, and external and financial sector stability to facilitate high and sustainable financial growth”. High pay of executives has nothing to do with both these variables.

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In conditions of incentives to operate a vehicle a particular institution’s passions in a wholesome competitive environment, the paycheck fetched by executives seems justified. On the other hand, from societal perspective and widening income inequality, it isn’t morally okay. On this issue, the central bank has a very limited mandate and role to try out. Mind you, I am not defending extremely high compensation.

I am just questioning why the NRB is engrossed in something it is not explicitly mandated and wasting time and resources when it has slacked on its explicit mandate. A proper body to consider this matter may be the Ministry of Finance (MoF). Inflation has been double-digit since 2008. Folks are reeling under rapidly changing prices of daily consumable goods and services.

Its policies to market sustainable long-term growth aren’t working. It didn’t check real property bubble, which is scooping up the majority of the loans from the bank sector. This sector’s contribution to GDP has been very minimal. Lately, the NRB rolled out insurance policies to limit loans to the real property sector.

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