Nov. 8, 2019

The Reserve Bank of India has issued compensation guidelines for whole-time directors and chief executives of foreign, private, small finance, payments banks and local area banks. The new guidelines will be applicable from the next financial year for pay cycles staring from April 1, 2020.

Key points from the central bank's notification:

  • A minimum of 50 percent of the salary of a chief executive officer (CEO) must be variable pay that is linked to performance.

  • If the variable pay exceeds 200 percent, then 67 percent of the compensation will have to be in the form of non-cash instruments. If the figure is up to 200 percent, then the requirement is 50 percent.

  • The total variable pay for bank chiefs is now capped at 300 percent of the fixed salary.

  • In case of “subdued or negative financial performance of the bank”, deferred compensation must be subject to malus/clawback arrangements

  • The clawback clause will also apply if the provision for non-performing assets or divergence in bad loan classification exceeds the stipulated threshold

  • For senior executives including WTDs, at least 60 percent of the total variable pay must be under deferral arrangements.

  • Guaranteed bonus should not be a part of the compensation plan and should only be given in the context of joining/sign-on bonus.