RBI proposes clawback of CEO perks

RBI has proposed revamp in CEO salaries, requiring at least half of bankers’ compensation to come under variable pay with the institution having the right to recover past bonuses, if the bank has high level of bad loans or hides bad debts.

The move follows RBI crack down on CEOs of private banks for divergence between bad loans disclosed by the bank and what emerged during the central bank’s inspection. In a late evening discussion paper, the central bank said that compensation practices, especially of large financial institutions, were one of the important factors which contributed to the global financial crisis in 2008. “Employees were too often rewarded for increasing the short-term profit without adequate recognition of the risks and long-term consequences that their activities posed to the organizations.