New UAE Remuneration Rules: 180 Days to Act
The Central Bank of the United Arab Emirates (CBUAE) has introduced updated remuneration guidelines that apply to both banks and insurance companies - institutions have 180 days to conduct a gap analysis and submit a detailed action plan.
These guidelines are designed to ensure compensation structures support long-term financial stability and prevent excessive risk-taking. Firms must align pay with risk management outcomes, and apply stricter controls to ‘material risk-takers’ (MRT) and seniors MRTs.
Key features include linking bonuses to financial and non-financial performance, introducing risk-adjusted compensation measures, restricting guaranteed bonuses, and the deferral of a significant portion of variable pay over multiple years.
Other deadlines:
- A full compliance and contract review: 15 months from effective date.
- An independent remuneration review: Annually.
- An independent remuneration framework review: Every 3 years.
The new guidelines apply to all UAE-licensed banks and insurance companies (including reinsurers and Takaful companies), and industry leaders in the region are taking steps to get ahead now.
Under the new guidelines, institutions need to establish formal, board-approved criteria to identify MRTs annually. MRTs are typically individuals able to approve material credit and underwriting decisions, accept risks outside of delegated authority, and make investment decisions that affect the portfolio’s risk-return balance.
Anyone in the top 5% of earners within these organizations must be assessed for SMRT designation, even if qualitative criteria are not met. Once designated, MRT or SMRT status can only be removed if there is a significant change in role or responsibilities.
Minimum deferrals and periods:
- Material risk-takers (MRT): 40% of variable pay, 3 years.
- Senior material risk-takers (SMRT): 60% of variable pay, 5 years
At least 50% of variable remuneration for MRTs must be paid in shares or share-linked instruments (or equivalent non-cash instruments for unlisted entities). Deferred amounts vest gradually, and all variable pay is subject to Malus and Clawback provisions under defined circumstances – including misconduct, risk failures, and regulatory penalties.
The board needs to approve MRT remuneration, both individually and as a cohort, and a dedicated Remuneration Committee is mandatory (with independent non-executive representation).
Following approval, the committee must work with the Risk Committee to ensure incentives align with risk appetite. Control function staff have to be involved in policy development, and their remuneration must be predominantly fixed and assessed on effectiveness (rather than revenue contribution.
Annual public disclosure must include remuneration structure, policy summaries, deferral information, vesting terms, and MRT pay types. Regulatory reporting to the CBUAE is required every 3 months of the financial year, and has to cover aggregate fixed and variable pay by staff category, deferred remuneration balances, as well as sign-on and severance payments.
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Our PerspectiveWe support the CBUAE’s ongoing efforts to increase transparency and align compensation practices with long-term risk management outcomes. Having worked with organizations in other markets to make similar transitions, we understand the critical importance of establishing clear, robust plans.
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Phantom plans
In Saudi Arabia (KSA), we have seen instances of firms significantly increasing bonuses for senior management to make up for the perceived losses caused by mandatory 60% deferrals. As a result, some of the highest bonuses in the banking sector are paid in the region.
The fact that part of the deferred amount must be paid in shares is seen as unattractive by some senior executives, with this relatively stable vehicle not offering the upside that many would like. This also presents a challenge for private companies, which can lead to the introduction of phantom share plans that present valuation issues and plan design complexity.
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Frameworks & Identifying MRTs
We also find that Institutions often lack a defined framework or set of criteria for identifying MRTs in the first place. This crucial element must be considered, alongside an MRT policy that will be embedded within the remuneration policy itself. Going forward, HR will be responsible for MRT identification, with Risk and other control functions taking on a ‘review’ role.
As the new guidelines bring the era of guaranteed bonuses to an end, they also require large financial institutions to attach risk and compliance metrics to bonus release. Organizations need to consider how their existing performance management systems need to be overhauled, and which KPIs need to be revised.
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Data infrastructureWithout mature data infrastructure, compliance can come with increased administrative and compliance burdens – overly conservative remuneration structures dull an organization’s competitive edge. Meaningful behavioural change is paramount, and ‘box-ticking’ approaches should be avoided.