IRDAl vide notification dated 30th June, 2023 has issued Guidelines on Remuneration of Directors and Key Managerial Persons of Insurers. Insurers must formulate a comprehensive remuneration policy approved by the Board, covering all KMPs and a different policy for directors. The policy should discourage inappropriate or excessive risk-taking for performance-based variable remuneration. The decision-making process in structuring, implementing, and reviewing the policy should identify and manage conflicts of interest. The Nomination and Remuneration Committee, in consultation with the Risk Management Committee, should adopt an integrated approach to formulating the policy.
The policy should cover various aspects of the remuneration structure, including fixed pay, retirement benefits, variable pay, and share-linked instruments. Parameters such as financial soundness, compliance, claim efficiency, grievance redressal, and overall compliance with applicable laws should be considered in performance assessments. At least 60% of the weightage in the performance assessment matrix for MD/CEO/WTDs and 30% for other KMPs should be based on these parameters. The guidelines governs following kinds of remuneration:
Annual remuneration comprises fixed pay and variable pay for a particular financial year.
Fixed pay includes basic pay, allowances, perquisites, contribution towards superannuation/retirement benefits, and other fixed components of compensation. Insurers must ensure that the fixed portion of remuneration is reasonable and adheres to statutory requirements.
Variable pay can be in the form of cash and/or share-linked instruments. It should be performance-based, using measures that do not encourage inappropriate risk-taking. Variable pay should be at least 50% of the fixed pay and should not exceed 300% of the fixed pay. At least 50% of the variable pay must be under deferral arrangements, with a minimum deferral period of three years.
Malus and Claw-back
Variable pay is subject to malus and claw-back provisions. Insurers must put in place appropriate mechanisms for incorporating these provisions, considering observable and verifiable measures of risk outcomes. Malus provisions prevent vesting of deferred remuneration, while claw-back provisions allow the insurer to recover previously paid or vested remuneration under certain circumstances.
Age and Tenure
The guidelines set limits on the age and tenure of MD/CEO/WTDs in insurers. No person can hold the position of MD & CEO or W.