Irdai to revise norms for remuneration of CEOs, directors of private insurance companies

In order to ensure fair remuneration or compensation practices and to avoid situations arising out of excessive risk taking behavior due to unfair compensation structures or incentive schemes and taking into account the experience of the last 5 years, IRDA proposed to change the existing guidelines .

The salient features of the proposed guidelines are as follows:

The guidelines cover remuneration of non-executive directors, CEOs/WTDs/MDs of private sector insurers which require submission of remuneration details to the authority.

2. For Non-Executive Directors (NEDs):

I. Apart from meeting fees and other expenses, it provides for payment of remuneration commensurate with the responsibilities of an individual director and timely demands, which are considered sufficient to attract qualified competent persons as fixed remuneration. However, such remuneration will not exceed 20 lakhs per annum for each such director except the Chairman. For the Chairman of the Board, the remuneration may be decided by the Board of Directors of the company concerned.

Second NED will not be eligible for ESOP. Any allocation of sweat equity to NED will require prior approval of the Authority.

iii. The maximum age and number of years a person can serve as NED as Chairman is aligned with the guidelines issued by RBI.

3. For Whole Time Directors / Chief Executives / Managing Directors

I. The remuneration structure will be divided between fixed pay, perquisites and variable pay.

Second fixed pay should be reasonable and all fixed items including perquisites will be treated as part of fixed pay.

iii. variable pay

a) Range of Variable Pay: At least 50% of the remuneration subject to a maximum of 300% of the fixed pay. Where variable pay is up to 200% of fixed pay, minimum 50% of variable pay should be through non-cash instruments. If the variable pay is more than 200% of the fixed pay then the same limit will be 70%.

b) Deferment – Minimum 50% of the variable pay should be deferred on ‘not faster than proportion’ basis over a period of three years. No deferment is necessary if the variable pay does not exceed Rs. 1.5 million.

c) Variable Pay Formula – A Variable Pay Formula has been prescribed with identified weightage with 70% for quantitative parameters and 30% for qualitative parameters. The insurer is required to specify performance parameters on the basis of which variable pay will be evaluated.