Page 49 - BFSI CHRONICLE 10 th Issue (2nd Annual Issue ) 23062 COPY.indd

BFSI Chronicle, 2 Annual Issue, 10 Edition July 2022
th
nd
e) Guaranteed Bonus: Guaranteed Bonus from April 1, 2023 and will be applicable on all
may not be paid to KMPs and Senior the finance companies, apart from the ones in
Management. However, in the context the Base Layer. These guidelines are as per the
of New Hires Joining / Sign-on bonus Scale-based Regulation for NBFCs introduced
could be considered. Such a Bonus will by RBI in October last year.
neither be considered part of Fixed Pay
According to the guidelines, the compensation
nor of Variable Pay.
packages will consist of variable and fixed pay
f) Malus / Clawback: The Deferred components which are effectively aligned with
Compensation may be subject to Malus prudent risk taking to ensure that compensation
/ Clawback (A Malus arrangement is accustomed for all kinds of risks. Additional,
permits the NBFC to prevent the vesting the compensation outcomes must be symmetric
of all or part of the amount of a deferred with risk outcomes and compensation pay-outs
remuneration. Malus’s arrangement does have to be sensitive to the time horizon of the
not reverse vesting after it has already risks.
occurred. A Clawback is a contractual
agreement between the employee and RBI stated that all the fixed items of
compensation, including the contributions and
the NBFC in which the employee agrees
to return previously paid or vested perquisites towards superannuation benefits,
remuneration to the NBFC under certain will be treated as part of fixed pay.
circumstances) arrangements in the Also, the proportion of Variable Pay which
event of subdued or Negative Financial included in the total compensation of the
Performance of the Company and / or management of NBFCs must be commensurate
the relevant line of Business or Employee with their role and prudent risk-taking profile
misconduct in any year. A Representative and at higher levels of responsibility, the
set of situations may be identified by the proportion of variable pay should be higher.
NBFC, which requires them to invoke Variable pay can even be reduced to zero based
the Malus and Clawback Clauses that on performance at an individual, business unit
may apply to entire Variable Pay. While and company wide level.
setting criteria for the application of
Malus and Clawback, NBFCs may also Also, the board of NBFCs may not offer
guaranteed bonuses to the senior management
specify a period during which Malus and
/ or Clawback can be applied, covering and key managerial personnel. “However, in
at least the deferral and Retention the context of New Hiring, Joining / Sign-on
Bonus could be considered. Such Bonus will
Periods (Retention period is defined
as a period which comes after the neither be considered part of Fixed Pay nor of
Variable Pay.
vesting of instruments that have been
awarded as variable pay through which References:
they shouldn’t be accessed or sold or a. RBI Circular No: RBI/2022-23/36 DOR.GOV.REC.
rd
accessed). No.29/18.10.002-23 dtd.:23 April, 2022.
Conclusion: b.RBI Circular No: DOR.CRE.REC.No.60/03.10.001/2021-
nd
The above said guidelines will be effective 22 dtd.: 22 October, 2021.

The Institute Of Cost Accountants Of India

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