RBI tightens variables pay norms for private bank CEOs



The Reserve Bank of India (RBI) has tightened the variable pay policy of private sector banks chief executive officer and wholetime directors by mandating that variable pay should be at least 50% of the total compensation and the total variable pay can be maximum 300% of fixed pay.

In case variable pay is up to 200% of the fixed pay, a minimum of 50% of the variable pay, and in case variable pay is above 200%, a minimum of 67% of the variable pay should be via non-cash instruments, RBI said.

In case that an executive is barred by statute or regulation from grant of sharelinked instruments, the variable pay will be capped at 150% of the fixed pay, but shall not be less than 50% of the fixed pay, according to the new guidelines.

These norms are applicable for whole time directors, chief executive officers and ‘material risk takers’ of private banks, including Local Area Banks, Small Finance Banks and Payments Banks. It is also applicable for foreign banks operating in India by way of Wholly Owned Subsidiary (WOS) structure.

“These guidelines will be applicable for pay cycles beginning from/after April 01, 2020,” RBI said.

The banking regulator said share-linked instruments should be included as a component of variable pay.

RBI said deferral arrangements must invariably exist for the variable pay, regardless of the quantum of pay.

“A minimum of 60% of the total variable pay must invariably be under deferral arrangements. Further, if cash component is part of variable pay, at least 50% of the cash bonus should also be deferred,” the guidelines said.

The norms mandate deferral period should be a minimum of three years which would be applicable to both the cash and non-cash components of the variable pay.(End)

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Printable version | Jan 27, 2020 6:22:29 PM |

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