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Cap salary rise of pvt banks CEOs at 10-15 percent RBI |
MUMBAI: Top bankers in the country
should stop expecting more than 15% hike in their fixed salaries annually since
a new rule on compensation to whole time directors and chief executives of
Indian non-government banks is on its way.
On Friday, RBI came out
with draft guidelines, proposing to restrict the fixed component of the annual
salary hikes of CEOs and wholetime directors of private banks to 10-15%. This is
part of RBI's comprehensive guidelines based on the compensation policy
formulated by the Financial Stability Board (FSB), a global body for
standardisation of rules for the financial sector.
RBI also proposed
that variable pay (bonuses) could be slashed in case of poor financial
performance of the bank. The central bank also wants salaries to top bankers to
be adjusted for all types of risks.
Addressed to all the Indian
non-government banks, the draft stated that the high salaries and bonuses paid
to bankers played a major role in contributing to the 2008 global financial
crisis. "Employees were too often rewarded for increasing the short-term profit
without adequate recognition of the risks the employees' activities posed to the
organisations," the draft stated.
RBI said that the boards of
directors of all banks should ensure that the amount of compensation a
particular employee gets should be reasonable, taking into account all relevant
factors. However, it went on to add "in case of whole time directors/CEOs, the
annual increase in fixed pay should not generally be more than in the range of
10% to 15%."
The RBI has invited suggestions on the issue and a final
guideline will be issued in a few months after taking into consideration the
suggestions. This would only be apllicable to Indian private sector banks and
would not include foreign banks and PSU banks. RBI also made it clear that
guaranteed bonuses should not be part of the compensation as they were not
consistent with sound risk management or the pay-for performance principles. The
draft also proposed that guaranteed bonuses should only be provided when hiring
new staff and limited to the first year only.
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