The Reserve Bank on Tuesday said it would come out with norms on salaries of CEOs of private and foreign banks by June end, in a move reminiscent of the U.S. seeking to control pay of Wall Street executives.
“It is proposed to issue comprehensive guidelines... on sound compensation practices by end—June 2010,” the RBI said today in its annual policy for 2010-11.
These guidelines, the RBI said, will cover effective governance of compensation, alignment of compensation with prudent risk taking and disclosures for whole time directors and CEOs as well as risk takers of banks.
Currently, the salaries of top executives in private and foreign banks are approved by the central bank after the respective bank’s board gives a go-ahead to the proposal.
U.S. lawmakers had blamed excessive salaries and bonuses of Wall Street executives for the 2008 financial meltdown and had moved to rein in their pay.
In the G-20 meet last year, the world leaders expressed concern over the high compensation packages of top bank executives, which, they argued was a not positive sign in a healthy financial system.
With a view to align the compensation with long-term value creation, the G-20 leaders asked the central banks to formulate compensation policies. However, each country will have to come out with its own rules.
The agreements reached at the G-20 summit discourage bonus guarantees extending more than a year. Besides, the bonuses should be linked to the CEOs individual contribution and performance in the organisation, the world leaders had said.
These agreements are based on guidelines of Financial Stability Board, set up under the initiative of G-20.
In the mid-term policy review last year, RBI governor D Subbarao had said that the apex bank was working on norms for sound compensation of top officials of private sector and foreign banks and will come out with norms to ensure healthy practices.