SEBI’s New Proposal: Relaxed ‘Skin-in-the-Game’ Rules For Asset Management Staff

The market watchdog has suggested relaxing rules pertaining to designated personnel of asset-management companies (AMCs) who have vested interests. 

Twenty percent of the total compensation of a selected employee, including non-cash compensation, must be invested in schemes that AMCs oversee. 

The regulator has suggested lowering this criterion for designated employees whose non-cash portion of their salary is less than 20%. 

On November 6, the Securities and Exchange Board of India (Sebi) published the consultation document.

 
Following talks with the working group on ease of doing business (EODB), the recommendation was made.

They claimed that the required 20 percent investment drastically decreased the designated employees' pay. They argue that there are more issues because of the non-cash element provided by employee stock options (ESOPs).

Senior employees are issued ESOPs with a vesting period of four to five years. As a result, a significant amount of compensation has already been postponed; an additional three-year lock-in under the game requirement might postpone this payment by nearly seven or eight years.

In addition, the employee typically takes out a loan to pay for the taxes and to buy the ESOPs. The individual is put under a great deal of strain if the 20 percent obligation is added on top of it.

They sought the minimum investment amount (MIA) criteria to not include the non-cash component.
However, the regulator observed that not much remains MIA after the non-cash component is eliminated from the pay of employees who earn a significant portion of their salary in this manner.

Therefore, the regulator recommended that only those who get less than 20% of their income in a non-cash format should have the non-cash component eliminated.
For those in this category, the regulator has proposed a number of slabs. The gross CTC will serve as the basis for these slabs.

According to the report, slabs will be determined using the CTC, and individuals who receive more than 20% of their compensation in non-cash will have the non-cash component fully included in the MIA calculation.