Legal challenge seen in rush to cut pay

KUWAIT CITY, April 15: Among supporters and opponents of the idea of reducing salaries and benefits for senior officials in private sector as a result of the spread of the coronavirus pandemic and its repercussions on the activities of institutions and slowdown in economic sector in general, a legal debate has emerged, which does not allow this step, as some consider the proposed reduction of large salaries to be a move fraught with the risks of nullity in the future, reports Al-Rai daily.

In banking sector, any person whose appointment requires obtaining prior regulatory approval is classified within leadership positions, which includes about 11 of the names of general managers other than the CEO and his deputies whose salaries differ from one institution to another – according to size but usually start from KD 5,000 as a minimum to 30,000 per month in some companies, along with annual benefits and bonuses calculated as a percentage of total profits.

The 11 leadership positions include general managers of risk and compliance, companies and individuals, as well as personnel, auditing, finance, treasury, legal, operations, and information technology.

The daily quoting a source indicated the occasion of this talk is due to the trend launched lately by many entities, foremost the Central Bank of Kuwait, which aims to reduce the salaries and benefits of top banking officials amid the worsening economic slowdown caused by the pandemic.

The source added the decision is within a broader banking move aimed at streamlining expenses in company budgets in the face of the crisis, which he considered a temporary remedy in the face of financial pressures caused by the market fluctuations that affect all companies.

In practice, the invitation did not stop at private sector institutions, as some did not hesitate to forward it to government employees who receive large salaries, considering “they benefited many years from budgets of prosperity, and it is their turn to reduce job dues in support of their institutions in times of stress”.

Of course, any tendency to reduce large salaries is generally appreciated and there is also a positive numerical effect of this step on companies’ budgets, in terms of their contribution to reducing the cost of fixed expenses, besides its consistency with the policy of “belt tightening” to which all institutions are supposed to resort to during crises, in an effort to reduce expenses.

As for the legal aspect, measuring the legality of this step does not depend on the number of savings budgets can record from this step but the extent to which they are described in the labor law, especially if the body that applies the measure to its employees has a strong financial solvency. This is because the target of the matter falls within the pre-emptive precautionary measures and the sense of social responsibility from the segment to support their institutions to reduce the burden of spending on them in the face of the repercussions of the “corona” crisis.

He pointed out that despite the agreement that this approach is driven by a sense of social responsibility, which must be demonstrated by the senior officials in supporting their institutions during crises, there is another opinion on a legal level, which reduces the integrity of this application or at least does not guarantee its protection in future in the event one of the leaders filed a lawsuit to void the procedure. It also carries the suspicion of deference and full submission to the will of the second party to set the provisions, in contravention of the law.

“Although open talk so far regarding the reduction of large salaries does not represent a blind policy targeting all employees but limited to leadership positions, it is not permissible according to the new law to deduct from the employee’s salary, whatever his position, with instructions befitting the institutions, because it is considered a salary cut that is open for appeal in the future, even if it comes by mutual consent,” he added.

The source explained that executive leaders, even if they never wish to reduce their expenses, will not often resort to suing the institutions they work for, as they are the makers of investment and financial policies, indicating they appreciate very well the need to reduce budget under the current situation due to its positive reflection on the final financial results.