RBI issues guidelines on executive compensation for foreign banks

The Reserve Bank of India has imposed restrictions on guaranteed bonus, severance pay and has suggested a ceiling on variable pay as it unveiled guidelines for compensation of senior executives in private and foreign banks operating in the country.

RBI said banks should limit variable pay for chief executives to a maximum 70 per cent of the fixed pay in a year. This, it said, can be deferred over a three-year period.

RBI said the variable pay should be linked to financial performance of banks and any deterioration in the performance should generally lead to a contraction in the total amount of variable remuneration paid.

The bank would also have the option to claw back deferred compensation in such an event, it said.

RBI said joining or sign-on bonuses should be only in the case of new hiring and should be limited to the first year while guaranteed bonus should be in the form of employee stock option.

Severance pay should be accrued benefits such as gratuity or pension except in cases where it is mandatory by any statute, RBI said.