Bank executives’ bonuses capped by RBI

As per RBI’s new rule, top executives in banks will have to receive half their salary in the form of variable pay which will be linked to their bank’s performance. The variable pay itself will be capped at 300% of the fixed pay and will include equity compensation. The inclusion of equity in variable pay and the cap on variable pay would mean that bonuses will be limited, and will include non-cash compensation.

The new guidelines announced by the central bank will be effective from April 1, 2020. These guidelines apply to private sector banks, local area banks, small finance banks and payment banks. They will also apply to multinational banks that have incorporated locally as wholly owned subsidiaries.

Besides chief executives, the restriction on salaries will apply to senior executives, including whole-time directors, and other employees who are risk-takers such as bond traders. RBI has said that if bonuses are paid in cash, at least half of the cash bonus should be deferred if the total amount is over Rs 25 lakh.