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Exposure Draft on Guidelines on Remuneration of Non-Executive Directors and Key Manager

  • Regulatory Updates
  • Exposure Draft on Guidelines on Remuneration of Non-Executive Directors and Key Manager

IRDAI has vide its circular dated May 2, 2023 on Guidelines on Remuneration of Non-Executive Directors and Key Managerial Persons of Private Sector Insurers issued the following Exposure Drafts namely;

  • IRDAI (Remuneration of Non-Executive Directors of Insurers) Guidelines, 2023.
  • IRDAI (Remuneration of Key Managerial Persons of Insurers) Guidelines, 2023.

These draft Guidelines, if notified, proposes to replace the extant Guidelines on Remuneration of Non-Executive Directors (NED) and Managing Director (MD) /Chief Executive Officer (CEO)/ Whole-Time Director (WTD) of insurers, issued vide circular ref IRDA/F&A/GDL/LSTD/155/08/2016 dated August 05, 2016.

The key provisions as mentioned under the Exposure Draft are as follows:

  • IRDAI (Remuneration of Non-Executive Directors of Insurers) Guidelines, 2023
  • Remuneration Policy:
  • Formulate a Board approved remuneration policy for NED.
  • Remuneration not to exceed Rs. 20 Lakh p.a. for each NED.
  • Remuneration to the Chairman of the Board to be decided by the Board.
  • NED shall not be eligible for any equity linked benefits.
  • Sitting fees and reimbursement of expenses paid for participation in Board and other meetings shall be in compliance with Companies Act, 2013 .
  • Age Limit and tenure of NED :
  • Maximum age limit for NED including Chair of the Board shall be 75 years .
  • Tenure of a NED other than Independent Director, on the Board of an Insurer shall not exceed a continuous period of 8 years and the individual shall be considered for reappointment only after a cooling-off period of 1 year.
  • Independent Director may be appointed for a term of up to 5 consecutive years on the Board and shall be eligible for reappointment for a second term post passing of special resolution. After completion of 10 years such independent director shall be considered for reappointment only after a cooling-off period of 3 years.
  • If a director has already completed a period of 8 years/ 10 years as the case may be, on the date of issuance of these guidelines, such insurers shall appoint new incumbent in place of such director(s) within a period of one year.
  • Disclosure on remuneration to be made in Annual Financial Statements.
  • IRDAI (Remuneration of Key Managerial Persons of Insurers) Guidelines, 2023
  • Remuneration Policy:
  • Formulate and adopt a comprehensive Board approved remuneration policy covering all the Key Managerial Persons (KMPs) which shall be reviewed annually by the Nomination Remuneration Committee (BNRC) .
  • Policy should cover all aspects of the remuneration structure such as Fixed Pay including allowances, perquisites, retirement Benefits, etc., Variable Pay including incentives, bonus, share linked instruments, etc., Joining / Sign on bonus and Severance Package.
  • Nomination and Remuneration Committee of the insurer in consultation with the Risk Management Committee should make a coordinated effort to have an integrated approach to the formulation of the remuneration policy.
  • Minimum parameters to be taken into account for determination of performance assessment of all KMPs for payment of variable pay or incentives has been specified. These parameters should constitute at least 60% of the total weightage in the performance assessment matrix of MD/CEO/WTDs; and at least 30% of the total weightage in the performance assessment matrix of other KMPs individually
  • Annual Remuneration shall be the aggregate of Fixed Pay (including monetary and non-monetary perquisites) and Variable Pay, for a particular financial year .
  • Malus and Clawback
  • Variable Pay should be subject to Malus and Clawback provisions and these provisions should also form part of the Board approved remuneration policy .
  • Insurers shall put appropriate mechanism in place to incorporate malus and clawback provisions in respect of variable pay linked to defined parameters, in the employment contracts of all KMPs.
  • Age Limit and tenure of MD/CEO/WTD
  • Maximum age limit of MD/CEO/WTD shall be 70 years and the same incumbent shall not hold the post for a continuous period of more than 15 years . Thereafter, may be considered for reappointment only after a cooling-off period of 3 years and during such period the individual not to be appointed or associated with the insurer or any of its group entities in any capacity, either directly or indirectly.
  • Further, if the MD & CEO or WTD is appointed by a promoter/ major shareholder, then he/she shall not hold the said posts for a continuous period of more than 12 years.
  • Also, a promoter/shareholder cannot hold a whole time position in the Company. However, the shares received through equity-linked instruments during the course of employment are exempted while determining his/her position as the KMP
  • If a director has already completed a period of 12 years/ 15 years as the case may be, on the date of issuance of these guidelines, such insurers shall appoint the new incumbent in place of such director(s) within a period of one year.
  • The provisions pertaining to Guaranteed bonus, Joining / Sign on Bonus and Severance Pay has been laid down.
  • Mandatory disclosures are to be provided in the notes to the accounts forming part of the Annual Report i.e. Qualitative and Quantitative disclosures in the prescribed annexures.
  • Accounting:
  • Annual Remuneration of MD/CEO/WTD and other KMPs individually exceeding Rs.3 crore shall be borne by the shareholders and debited to Profit and Loss Account.
  • Recovery of earlier paid remuneration, if any, should be credited to Revenue Account / Profit and Loss Account, as the case may be.
  • Prior approval of the Authority shall be required for appointment and remuneration of MD / CEO/ WTDs and no revision in remuneration shall be permitted by the Authority before the expiry of one year from the date of earlier approval

Source category: IRDAI

Attachments

  • /2023/192_2023-05-02_-_Draft_Guidelines_Directors_and_KMPs.pdf
  • /2023/192_2023-05-02_-_Draft_Guidelines_Non-Ex__Directors.pdf
  • /2023/192_Comparision_with_existing_Remuneration_Guidelines.pdf
  • /2023/192_Exposure_Draft_Guidelines_on_Remuneration_of_Non-Executive_Directors_and_Key_Mana.pdf

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