Markets regulator Securities and Exchange Board of India (SEBI) on Wednesday said a part of compensation of key employees of asset management companies (AMCs) should be paid in the form of units of scheme in which they have a role.
In a circular, SEBI said it has taken the decision with a view to align the interest of key employees of AMCs with the unitholders of the mutual fund scheme.
"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 (i.e. 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 regulator said.
The compensation paid in the form of units needs to be proportionate to the asset under management (AUM) of the schemes in which the key employee has a role or oversight, SEBI said, adding that exchange traded funds (ETFs), index funds, overnight funds and existing close ended schemes will be excluded for this purpose.
The compensation needs to be paid proportionately over 12 months on the date of payment of such salary/perks/bonus/non-cash compensation and such mutual fund units would be locked-in for a minimum period of three years or tenure of the scheme, whichever is less, Sebi said.
The circular will come into effect from July 1, 2021.
With a view to allowing the key employees to diversify their unit holdings, in case of dedicated fund managers managing only a single scheme or single category of schemes, SEBI said 50 per cent of such compensation will be by way of units of the scheme managed by the fund manager, while the remaining 50 per cent could be by way of units of those schemes whose risk value as per the risk-o-meter is equivalent or higher than the scheme managed by the fund manager.
The regulator also said units allotted to the key employees will be subject to clawback in the event of violation of code of conduct, fraud or gross negligence by them, as determined by SEBI. Upon clawback, the units will be redeemed and amount will be credited to the scheme. The compliance of the provisions of this new framework will be ensured by the AMCs and monitored by the trustees.
The provisions of this circular will not be applicable to key employees having oversight only over ETFs, index funds, overnight funds and existing close ended schemes.
Chief Executive Officer(CEO), Chief Investment Officer(CIO), Chief Risk Officer (CRO), Chief Information Security Officer (CISO), Chief Operation Officer (COO), Fund Manager, Compliance Officer, Sales Head, Investor Relation Officer (IRO), heads of other departments, direct reportees to the CEO, fund management team and research team, among others, will be included as key employees, SEBI said.
The modalities with respect to contribution of key employees in close ended schemes and its applicability shall be provided in due course, the regulator added.