Notification Detail :
RBI/2019-20/89
DOR.Appt.BC.No.23/29.67.001/2019-20 November 4, 2019
All Private Sector Banks (including Local Area Banks, Small Finance
Banks, Payments Banks) and Foreign Banks operating in India
Dear Sir/Madam,
Guidelines on Compensation of Whole Time Directors/ Chief Executive Officers/
Material Risk Takers and Control Function staff
The compensation practices, especially of large financial institutions, were one of the
important factors which contributed to the global financial crisis in 2008. Employees
were often rewarded for increasing short-term profit without adequate recognition of
the risks and long-term consequences that their activities posed to the organisations.
These perverse incentives amplified excessive risk taking that severely threatened the
global financial system. The compensation issue has, therefore, been at the centre
stage of regulatory reforms.
2. In the wake of financial crisis, in order to address the issues in a coordinated manner
across jurisdictions, the Financial Stability Forum (later the Financial Stability Board
i.e. FSB) brought out a set of Principles (FSF Principles for Sound Compensation
Practices, dated April 02, 2009) and Implementation Standards (FSB Principles for
Sound Compensation Practices - Implementation Standards, dated September 25,
2009) on sound compensation practices. The Principles are intended to reduce
incentives towards excessive risk taking that may arise from the structure of
compensation schemes. The Principles call for effective governance of compensation,
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