IRDAI issues remuneration guidelines for top executives of insurance companies
The guidelines cover remuneration structure such as fixed pay, perquisites, bonus, guaranteed pay, severance package, stock, pension plan, gratuity, etc.
The Insurance Regulatory and Development Authority of India (IRDAI) has set guidelines on the remuneration of non-executive Directors, Managing Directors, CEOs and whole-time Directors of Insurance companies.
The IRDA said that the remuneration packages, bonuses and incentives to the employees of financial institutions have often been based on high short-term profits without adequate regard to long-term risks taking by employees, which threatened the global financial system.
It further added that there was a need to bring in professionalism to the boards of insurers. “In order to enable insurers to attract and retain professional directors it is essential that such directs are appropriately compensated,” the IRDA added.
The guidelines cover remuneration structure such as fixed pay, perquisites, bonus, guaranteed pay, severance package, stock, pension plan, gratuity, etc.
One of the main points made in the guideline states that if the variable pay of a CEO, Directors or MD is 50% of the total pay or more then an appropriate portion of such variable pay (40% or 60%) must be deferred over a period of not less than 3 years.
If the remuneration of the MD, CEO or whole-time Director is over Rs 1.50 crore then it should be debited to a Shareholders' Fund, it added.
It said that the insurance company should ensure the remuneration is adjusted for all types of risk.
It said the Employees Stock Option Plan (ESOP) may be excluded from components of variable pay.
Insurance companies have until 3 months to come up with their own remuneration policy using these guidelines.
The IRDA also set separate 'Remuneration Policy' guidelines for non-executive Directors. This included putting a cap of Rs 10 lakh per annum on remuneration in the form of profit related commission to non-executive Directors. The Chairman however will be excluded from this and his remuneration can be decided by the Board of Directors.
For sitting fees and reimbursement of expenses, the IRDA specified that the insurance company may pay sitting fees to non-executive Directors and reimburse their expenses.
It said that the insurance companies have to disclose the remuneration paid to directors on an annual basis in their Annual Financial Statement.
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