RBI caps salary hikes for private sector bank directors, CEOs

Banks should ensure that the fixed portion of compensation is reasonable for the employee, taking into account all relevant factors. However, in case of whole time directors and CEOs, the annual increase in fixed pay should not generally be more than in the range of 10 to 15 per cent, the Reserve Bank of India said on Friday.

Perquisites may be paid by banks in line with their existing practices, RBI said in new guidelines on compensation package for whole time directors, CEOs and other key officials engaged in the risk taking and control functions of private sector and local area banks and foreign banks operating in the country.

While designing the compensation arrangements, RBI said, banks should ensure that there is a proper balance between fixed pay and variable pay. At higher levels of responsibility, the proportion of variable pay may be higher. The variable pay could be in cash, stock-linked instruments or a mix of both, RBI said.

Any deterioration in the financial performance of the bank should generally lead to a contraction in the total amount of variable remuneration paid, it said.

Where the variable pay constitutes a substantial portion of the total pay, 40 per cent to 60 per cent of the variable pay must be deferred for minimum period of three years. 

As far as possible a substantial proportion of deferred variable pay should be awarded in shares or share-linked instruments (such as ESOPs). Grant of share-linked instruments should also conform to SEBI guidelines. The remaining portion of the deferred compensation should be paid as cash compensation vesting gradually.