The Reserve Bank of India has suggested major changes in the compensation plans for top bank executives, including directors and traders earning substantial bonuses. The RBI has also suggested the inclusion of a claw back clause on variable pay when assessments of the central bank and those of a lender differed on asset quality. The central bank outlined in a discussion paper that the banks are required to put in place appropriate modalities to incorporate malus/ claw back mechanism in respect of variable pay. Wherever the assessed divergence in bank’s asset classification or provisioning from the RBI norms exceeds the prescribed threshold for public disclosure, the bank shall not pay the unvested portion of the variable compensation for the assessment year under the ‘malus’ clause, it added. The RBI has also made proposals like maintaining the ideal balance between fixed and variable components of targeted remuneration and creating plans that reward talent with employee stock options.
