The mutual fund industry has largely welcomed market regulator Sebi’s plan to ensure that top executives have more skin in their game through a compensation plan that requires them to receive 20 per cent of their monthly salary in the form of units.
Top CEOs of the industry found nothing wrong with the regulator’s move, but are worried about the implementation and implication for junior employees as 20 per cent of their salary will be locked in for three years.
In a late evening circular on Wednesday, Sebi said at least 20 per cent of key employees’ salaries should be paid in the form of units of mutual fund schemes in which they have an oversight. The compensation paid in the form of units needs to be proportionate to the asset under management (AUM) of the schemes. More importantly, such mutual fund units will be locked-in for a minimum period of three years or the tenure of the scheme, whichever is less.
Radhika Gupta, MD & CEO, Edelweiss AMC, tweeted that Sebi’s directions will be difficult to implement.
Questioning how such decisions can be made at the beginning of the year, Gupta said that though the circular is a good idea in spirit, it will be extremely problematic in implementation.
“This circular applies to not just senior employees but junior research staff, dealers and support function heads. These people don’t earn the kind of money CEOs and chief investment officers (CIOs) do. It mandates how much one saves,” she said, adding that for an employee earning a relatively less salary, it will be difficult to put away 20 per cent.
“We are constraining employee cash flows… If we want to build skin in the game, a simple rule would do it: for people earning more than Rs 50 lakh, 50 (or some per cent) of your investments (not assets) should be in your own funds. Finished,” she added.
There are also apprehensions over franctionalisation. While the CEOs have oversight over all the schemes and, therefore, their unit-based compensation will be spread over a wider pool, this may not be the case with other key employees who handle only some schemes.
Sebi has also said that the directions will be implemented from July while fund houses generally announce salary packages at the beginning of the fiscal. This could pose another niggle for the mutual funds.