The Securities and Exchange Board of India has said that the top executives of asset management companies should receive 20 per cent of their salary in the form of units of the mutual funds over which they exercise oversight to ensure that they have some skin in the game.
The market regulator on Wednesday announced a remuneration framework that seeks to align the interests of the key officials of AMCs with the unit holders of the mutual fund schemes — many of whom have been groaning about piffling returns in a Covid-battered year.
The key employees include the chief executive officer, chief investment officer, chief risk officer, chief information security officer, and chief operation officer.
It also covers fund managers, compliance officer, sales head, investor relations officers, heads of other departments and dealers of the of the AMC.
It also includes direct reportees to the CEO (excluding personal assistant/secretary), fund management team and research team apart from other employees as identified by AMCs and trustees.
“A minimum of 20 per cent of the salary/ perks/ bonus/non-cash compensation (gross annual CTC) net of income tax and any statutory contributions (PF and NPS) of the key employees of the AMCs shall be paid in the form of units of mutual fund schemes in which they have a role/ oversight,” the Sebi circular said.
The regulator added that the compensation paid in the form of units needs to be proportionate to the asset under management of the schemes. Exchange traded funds, index funds, overnight and existing close ended schemes have been excluded.
The compensation will have to be paid proportionately over 12 months on the date of payment of such salary/perks/ bonus/non-cash compensation. If the compensation is paid in the form of employee stock options, the date of exercising such option will be considered as the date of payment. The mutual fund units issued to these officials will be locked-in for a minimum of three years or tenure of the scheme, whichever is less.
Sebi has cut some slack for dedicated fund managers who take investment decisions for a single scheme or a single category of schemes. In their case, they will be permitted to receive 50 per cent of their fund-aligned compensation in the form of the units of the scheme or category that they manage. The remaining 50 per cent can be issued by way of units in those schemes whose risk value is equivalent or higher than the scheme they manage.
No redemption of these units will be allowed within the lock-in period in case of resignation or retirement before attaining the age of superannuation. However, in case of retirement on attaining the superannuation age, the units can be released from the lock-in and the key employee will be free to redeem the units.
However, AMCs may allow its key officials to borrow funds from the entity against such units to meet medical emergencies or on humanitarian grounds.
The units issued to these officials will be subject to clawback provisions in the event of a violation of Code of Conduct, fraud, or gross negligence as determined by the regulator.
Upon clawback, the units shall be redeemed and the amount credited to the scheme.