POLICY FOR REMUNERATION / COMPENSATION OF KEY MANAGERIAL PERSONNEL NBFC / Financial Institution – Board Approved Policy Template Version 1.0 | Effective Date: __________
1. Purpose This Policy establishes a transparent, fair and prudent framework for determining remuneration and compensation of Key Managerial Personnel (KMP), including fixed pay, variable pay, benefits, incentives, perquisites and other employment-related compensation. The framework is designed to align remuneration with sustainable business performance, risk management, regulatory expectations, governance standards and long-term stakeholder interests.
2. Regulatory and Governance Framework The Policy shall be read with the Companies Act, 2013 and applicable rules, RBI directions/guidelines applicable to the Institution, applicable listing requirements where relevant, the Articles of Association, service contracts, Board-approved governance frameworks and any amendments or regulatory instructions issued from time to time. Where regulatory requirements are more stringent than this Policy, the regulatory requirement shall prevail.
3. Scope Managing Director / Whole-Time Director, where applicable
Chief Executive Officer / Chief Financial Officer / Company Secretary and other KMP as defined under applicable law
Senior management personnel where remuneration is subject to Board or Nomination & Remuneration Committee oversight
Any other employee designated by the Board for purposes of this Policy
4. Guiding Principles Pay for sustainable performance rather than short-term volume or profit alone.
Maintain an appropriate balance between fixed and variable remuneration.
Ensure remuneration reflects individual responsibility, experience, competence and performance.
Incorporate risk, compliance, conduct and asset-quality outcomes into variable compensation.
Avoid incentives that encourage excessive risk-taking, mis-selling, policy breaches or regulatory non-compliance.
Ensure independence of control functions and avoid conflicts of interest.
Maintain internal equity and external competitiveness.
Apply malus and clawback provisions where permitted and appropriate.
5. Governance Structure
6. Components of Remuneration
6.1 Fixed Remuneration Fixed remuneration may include basic salary, allowances, employer contributions, eligible perquisites and other contractual benefits. Fixed pay shall be sufficient to attract and retain competent personnel without creating undue dependence on variable compensation.
6.2 Variable Remuneration Variable remuneration may include performance bonus, incentive compensation and other performance-linked payments. It shall be based on a balanced scorecard incorporating financial performance, risk-adjusted
performance, customer outcomes, compliance, governance, leadership and strategic objectives.
6.3 Benefits and Perquisites Retirement and statutory benefits
Medical and insurance benefits
Official vehicle / travel benefits where approved
Leave and other employment benefits
Other Board-approved perquisites consistent with policy
7. Performance Assessment Performance shall be assessed using a documented scorecard. Indicative parameters may include:
Sustainable profitability and growth
Asset quality, collections and credit performance
Capital and liquidity discipline
Customer service and conduct
Compliance and regulatory performance
Fraud prevention and operational risk management
Strategic execution and transformation
People leadership and succession development
The Board/NRC may apply downward adjustments, deferment or cancellation of variable pay where performance is affected by material risk events, control failures, misconduct or regulatory concerns.
8. Risk-Adjusted Compensation Variable remuneration shall consider the Institution's risk appetite, risk-adjusted returns, material risk outcomes and the impact of decisions over an appropriate time horizon. Revenue growth or disbursement volumes alone shall not be sufficient to determine incentive outcomes.
9. Malus and Clawback The Institution may defer, reduce, cancel or recover variable remuneration where there is material financial misstatement, fraud, misconduct, serious compliance failure, breach of risk limits, regulatory action attributable to the individual's conduct, or other circumstances specified in the approved employment/compensation terms and applicable law.
10. Deferral and Vesting Where applicable under regulatory requirements or Board-approved compensation arrangements, a portion of variable remuneration may be deferred and/or subject to vesting over multiple periods. Deferred compensation shall remain subject to risk and performance adjustment.
11. Control Function Independence Personnel in Risk, Compliance, Internal Audit and other control functions shall have remuneration arrangements that preserve functional independence. Their performance assessment shall be substantially based on function-specific objectives and shall not be linked primarily to the financial performance of business units they oversee.
12. Conflict of Interest No KMP shall participate in deliberations or approvals concerning their own remuneration.
Related-party interests shall be disclosed and managed in accordance with applicable law.
Compensation decisions shall be documented and supported by objective performance evidence.
13. Disclosure and Record Keeping The Institution shall maintain appropriate records of remuneration decisions, performance assessments, approvals, deferrals, adjustments and recoveries. Required disclosures in financial statements, annual reports, regulatory returns and other statutory filings shall be made in accordance with applicable requirements.
14. Review of the Policy The NRC shall review this Policy at least annually and recommend amendments to the Board. The Policy shall also be reviewed whenever there is a material change in applicable law, RBI requirements, business model, risk profile or compensation practices.
15. Exceptions Any exception to this Policy shall require documented justification and approval by the competent authority, subject to applicable law and regulatory requirements. No exception may override a mandatory statutory or regulatory requirement.
16. Effective Date and Ownership Policy Owner: Human Resources / Company Secretary / designated function Approving Authority: Board of Directors Effective Date: __________ Next Review Date: __________ Policy Version: 1.0
Appendix A – Illustrative KMP Compensation Scorecard
Appendix B – Annual Approval Checklist NRC review completed
Risk function input obtained
Performance scorecard approved
Compliance and conduct assessment completed
Malus/clawback assessment completed
Board approval recorded
Required disclosures completed
Authority Primary Responsibility Approval / Review
Board of Directors Overall oversight and approval of Annual / as required KMP remuneration framework and material compensation decisions.
Nomination & Remuneration Recommend remuneration, As per terms of reference Committee (NRC) performance parameters, succession and compensation structure.
Risk Management / Risk Function Provide risk and control inputs for Periodic variable remuneration and risk-adjusted performance.
HR / Compensation Function Market benchmarking, payroll Annual / ongoing administration and implementation.
Internal Audit Independent review of adherence Risk-based to policy and controls.
Parameter Illustrative Weight Measurement Risk / Governance Gate
Financial & Strategic 30% Sustainable earnings, Subject to risk appetite Performance strategic delivery
Asset Quality / Risk 25% Portfolio quality, Mandatory Outcomes risk-adjusted returns
Customer / Conduct 15% Customer outcomes, Mandatory complaints, fair practices
Compliance / Control 15% Regulatory compliance, Mandatory audit and control outcomes
Leadership / People 15% Succession, culture, Qualitative + capability building quantitative