Chang Hwa Bank|Corporate Social Responsibility-Board of Directors

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Board of Directors

Composition and functioning of the Board

1. Appointment and Succession

(1) Candidates Nomination System Since the 25th session of the Board of Directors, the Bank has fully adopted candidates nomination system, and has adopted diversified and real-time information disclosure and voting methods to enable shareholders to fully understand relevant information about candidates, so as to ensure that shareholders can exercise shareholder rights fairly and effectively, promote the sound development of the company, and implement corporate governance.
(2) Board of Directors Succession Plan The Bank's Board of Directors adopts a candidate nomination system for the election of directors, in which shareholders nominate director candidates. With the Bank’s business goals and direction as the benchmark, we measure the independence and diversity of the Board as well as the professional competence that the Board should possess as a whole, and the results of the Board performance evaluation are used as a reference for nominating directors for re-election.

2. Diversity and Professionalism of the Board Members

(1) Composition of the Board of Directors
The term of the 26th Board of Directors of the Bank is from June 19, 2020 to June 18, 2023. Nine directors (three independent directors and six non-independent directors) were elected by the shareholders' meeting, and three directors were elected from among themselves as managing directors (including one independent director), and then the managing directors elected one person from among themselves as the Chairperson.
a. All Directors are nationals of the Republic of China, among which are two female directors (22.22%), three independent directors (33.33%), and two natural-person directors (22.22%).
b. Age Distribution of Directors
The age distribution of the 26th directors is between 50 and 85 years old.
c. The average tenure of directors is 4.33 years, none exceeding 9 years (one independent director has a tenure of 8.5 years, and two independent directors have a tenure of 2.5 years each).
(2) Professionalism of Directors
The 26th Board of Directors’ members of the Bank have industrial experiences and professional competencies including banking, insurance, securities, technology, asset management, venture capital, monetary policy, administration, finance, taxation, accounting, law, economics, business, and risk management, etc. Diverse and different fields of professionalism endow the decision-making of the Board of Directors with objectivity and completeness, and improve the decision-making quality of the Board of Directors. In order to strengthen the professional functions of directors and assist in decision-making, all directors participate in corporate governance, risk management, information security, business operations, legal affairs, accounting, financial analysis, consumer rights and sustainable development (ESG) and other refresher courses in accordance with ”Directions for the Implementation of Continuing Education for Directors" of the Bank, the total number of hours for all directors in 2022 is 113.9 hours, all complying with the hours required by the competent authority. For further information, please refer to the Market Observation Post System.
(3) Information of the 26th Board of Directors and Implementation of the Diversity Policy
Note 1: For the Directors’ independence status of the Bank in accordance with the standards of domestic regulations, please refer to the Bank's 2022 Annual Report for detailed information.
We adopt the definitions of independent directors under RobecoSam's Dow Jones Sustainability Index (DJSI) for outside directors' independence criteria. Directors must meet at least 4 of the 9 following indicators and meet at least 2 of the first 3 indicators:
・The director must not have been employed by the Bank in an executive capacity within 2022.
・The director and Family Member of the director must not accept any payments from the Bank or any subsidiary of the Bank in excess of US$60,000 during 2022, other than those permitted by SEC Rule 4200 Definitions.
・The director must not be a “Family Member of an individual who is employed by the Bank or by any subsidiary of the Bank as an executive officer.”
・The director must not be an adviser or consultant to the Bank or a member of the Bank’s senior management.
・The director must not be affiliated with a significant customer or supplier of the Bank.
・The director must have no personal services contract(s) with the Bank or a member of the Bank’s senior management.
・The director must not be affiliated with a not-for-profit entity that receives significant contributions from the Bank.
・The director must not have been a partner or employee of the company’s outside auditor during 2022.
・The director must not have any other conflict of interest that the board itself determines to mean they cannot be considered independent.
2: Chairperson Jong-Yuan Ling does not concurrently serve as a manager of the Bank and meets the independence criteria under RobecoSam's DJSI.
3: Managing Director Chao-Chung Chou serves as the President of the Bank concurrently, and the criteria for the independence of the outside directors above do not apply.
4: All directors of the Bank are R.O.C nationals; Except for president Chao-Chung Chou who is also an “Executive Director” (meaning that a director of the Bank is also an employee or senior manager of the Bank), the rest of the Directors are “Non-executive Directors”.

3. Implementation of the Board and Recusal due to Conflicts of Interest

(1) All directors performed their duties in accordance with the Bank's Articles of Incorporation and Rules of Procedures for Board of Directors Meetings.The average of the attendance of all members on the Board should reach 85% or above. In 2022, the Board of Directors held 14 meetings (including 1 extraordinary Board meetings), and the attendance was 98.41%.
(2) If there is a proposal, with which a director has a conflict of interest, at a Board meeting, they should recuse themselves from the resolution. For the directors' recusal from the resolution due to conflicts of interest, Please refer to the Annual Report, III Corporate Governance Report, D. Implementation Status of Corporate Governance, a. Implementation of Board of Directors, and 2. The implementation of the Directors' recusal to content of motion in conflicts of interest.
(The Bank discloses the following information in the annual report, including the positions held by directors concurrently, the institutional shareholders they represent, the major shareholders of the institutional shareholders, and the information on the top ten shareholders who are related parties to each other.)
(3) Communication about Key Material Events
All the Bank's responsible units submit major proposals to the Board of Directors for review or deliberation on a regular or irregular basis due to practical operational needs or regulatory requirements. They can also report to the Board of Directors in real time by means of extraordinary motions, to inform the Board of Directors and communicate with it in a timely manner.
Important Resolution of the Board
(4) Functional Committees of the Board of Directors
The Board of Directors of the Bank has set up 3 functional committees, the Audit Committee, the Remuneration Committee and the Sustainable Development Committee. Their composition and operating status are as follows:

2.1.3 Performance Evaluation of the Board of Directors

The Bank has established the “Rules of Performance Evaluation of the Board of Directors” , which establishes performance goals to enhance the operational efficiency of the board of directors, and conducts annual performance evaluations in accordance with the evaluation procedures and evaluation indicators stipulated in these measures. The process is as follows:
(1) Frequency of Performance Evaluations
The Bank shall conduct the performance evaluation at the end of each year in accordance with the evaluation procedures and evaluation indicators set in the Rules, and shall complete and report to the Board of Directors before the first quarter of the following year. The external evaluation shall be conducted by external independent professional institution or a panel of external experts and scholars at least once every 3 years.
(2) Performance Evaluation Method
A. Internal Evaluation
a. Evaluation Method
Members of the Board of Directors (including the Functional Committee) shall self-assess using the "Performance Self-Evaluation Form" , and the results of each indicator of the “Performance Evaluation Form” shall be calculated based on the actual operation of the Board of Directors (including the Functional Committee).
b. Aspects of Evaluation
c. Evaluation Results
The consolidated comprehensive evaluation results of the “Performance Evaluation Form”of the Board of Directors and the Functional Committee are divided into the following three levels:
(a) Exceeding the standard: above 90 points
(b) Meets the criteria: above 80 points but less than 90 points
(c) To be strengthened: less than 80 points
► The overall evaluation results of the Bank’s 2022 board of directors and functional committees were all "exceeding the standard".
B. External Evaluation
a. The external evaluation is conducted by an external independent organization or a team of external experts or scholars who meet the qualifications below as per the indicators and procedures (usually questionnaires and on-site interviews) they set:
I. Professional and independent.
II. Relevant institutions or management consulting firms, which mainly offer education and training courses for the board of directors or provide services to improve corporate governance.
III. At least three members should be the experts or scholars specialized in the field of board of directors members or corporate governance.
b. Evaluation Results The most recent external evaluation is for 2021, entrusted to the external independent agency EY Enterprise Management Consulting Services Co., Ltd. (hereinafter referred to as EY). The members of EY are experienced experts in corporate governance, risk management, ESG and other aspects. EY and its experts are independent, professional, and are’t finances and tax auditing accountant of the Bank.
EY assessed the comprehensive performance of the Board of Directors (including the Functional Committee) of the Bank in the three aspects of “Structure”, “People” and “Process and Information” as “Advanced”.
The Rules of Performance Evaluation of the Board of Directors
Evaluation Result of the Performance of the Board of Director

Remuneration Policies and Procedure for Determining Remuneration

Remuneration Policies

1. Remuneration of Senior Managers
(1) Remuneration of Directors (including Chairperson and Independent Directors)
According to Item 13, Article 20 of the Bank’s Articles of Incorporation, the remuneration of the Directors shall be on par with the salary levels of Directors of financial institutions similar in size to the Bank and decided by the Board of Directors. The Remuneration Committee and the Board of Directors will combine the performance evaluation results of the Board of Directors to evaluate remuneration of Directors (including Chairperson, Directors and Independent Directors) annually in accordance with Item 2, Paragraph 1, Article 7 of Rules of Performance Evaluation of the Board of Directors.
(2) Remuneration of President
According to Item 14, Article 20 of the Bank’s Articles of Incorporation, remuneration of President is determined by the Board of Directors.
(3) Remuneration of Executive Vice Presidents
According to Item 14, Article 20 of the Bank’s Articles of Incorporation, remuneration of Executive Vice Presidents is determined by the Board of Directors within the scope of the Bank’s “Salary Scales List for Personnel”.
2. Remuneration Deferral Policy for Senior Managers
To motivate senior managers to achieve greater performance, duly conduct risk management, and enhance corporate governance, we have formulated a remuneration deferral policy for senior managers (including the President, the Executive Vice Presidents, the EVP & Chief Auditor, the EVP & Chief Compliance Officer, heads of divisions at the head office, regional centers, and domestic and overseas business units), in the “Chang Hwa Commercial Bank Employee Bonus Payment Regulations”. As per the policy, 80% of the performance bonus should be paid first, and the remaining 20% should be deferred and paid three months later (if the Board of Directors does not resolve a decision to retain the performance bonus due to a risk of improper conduct, which may cause the Bank to suffer losses). This has indicated that the Bank insists on ethical management to promote sustainable development.

Procedure for Determining Remuneration

The members of the Remuneration Committee shall faithfully perform the following duties and responsibilities with the attention of good stewardship:
1. To evaluate and review the Bank’s overall salary and remuneration policy.
2. To establish and periodically review the performance evaluation (including performance evaluation standards) and remuneration policies, systems, standards and structures of the Directors, President, Executive Vice Presidents, the EVP & Chief Auditor, the EVP & Chief Compliance Officer, consultants, and heads of head office divisions and branches of the Bank, and to fully disclose the performance evaluation standards to shareholders in the annual report.
3. To periodically evaluate and set the remuneration of Directors, President, Executive Vice Presidents, EVP & Chief Auditor, EVP & Chief Compliance Officer, consultants, and heads of head office divisions and branches of the Bank.
4. To establish performance evaluation standards and remuneration standards for the Bank’s sales staff of various financial products and services, and to fully disclose the principles, methods and objectives of such standards or structures and systems to shareholders in the annual report.
5. To deliberate the following matters of the Bank’s subsidiaries:
(1) Decision on salary and remuneration levels of Directors, Supervisor, Chairperson, President, and Executive Vice Presidents.
(2) Formulation and revision of rules governing salary, bonus and remuneration for employees.

◎ Remuneration Deferral Policy for Senior Managers

As per the policy, 80% of the performance bonus should be paid first, and the remaining 20% should be deferred and paid three months later, that is, paid in the next year.

◎Indicatorfor Performance bonus

Indicator	Description	Weight (%)
Financial profits	● Earnings before tax ● ROA ● ROE ● NPL ratio	40%
Expense control	● Promote service and operation efficiently	15%
Risk management	● Strengthen risk management mechanism ● Enhance risk awareness of employee ● Focus data and Cyber security	15%
Market share	● Develop new corporate and individual products ● Enlarge domestic and international market shares of corporate and individual products (such as loan, syndicated loan, Foreign exchange, Wealth Management Business etc.	10%
Human capital	● Performance-oriented human resources ● Hipo talent organization	10%
ESG & disclosure	● Sustainable environment ● Climate change ● Social Inclusion ● Governance ● Green finance ● Report and disclosure	10%