Capital market regulator SEBI plans to ease the mutual fund industry’s concerns regarding ‘the skin in the game’ norms by implementing it based on the salary bracket and excluding the non-cash components like ESOPs from the minimum investment calculation.
The skin in the game regulation for designated employees, such as the CEO, CIO and fund managers in the mutual funds industry, mandates that they must invest 20 per cent of their annual salary and perks in the schemes they manage. This amount is locked in for three years.
SEBI has invited public comments on the proposals till November 21.
In a consultation paper issued late Wednesday, SEBI proposed to reduce the mandatory investment percentage by applying it based on salary brackets, and excluding non-cash components. The proposals are aimed at easing compliance, particularly for employees with lower CTCs and those in operational roles.
As per the proposed norms, employees earning below ₹25 lakh would have no mandatory investment, while those with a CTC between ₹25-50 lakh would invest 10 per cent, those between ₹50 lakh-1 crore would invest 14 per cent and those with a CTC of above ₹1 crore would invest 18 per cent.
Further, the regulator has proposed reducing mandatory investment requirements for non-investment staff such as COOs, sales heads and allowing flexibility based on each employee’s role and activities in the AMC. Under the current rule, the same percentage of investment is required for all designated employees.
The regulator has suggested excluding non-cash components like ESOPs from the minimum investment calculation to address challenges such as delayed compensation and high debt burdens for employees with stock options.
An industry analysis highlighted by SEBI showed that, AMCs on average pay about 7 per cent of total compensation as non-cash benefits. Only six out of 47 AMCs paid over 20 per cent in non-cash compensation over the past three years.
Additionally, SEBI has proposed allowing early release of units upon resignation of employees, said the consultation paper.
Under the current rule, units are locked even if employees leave before retirement age; if they retire, lock-ins are lifted, except for close-ended schemes.
Additionally, the regulator has proposed the disclosure of stress testing results public for all mutual fund schemes, except closed-ended schemes.
In case of any non-compliance with the Code of Conduct, SEBI has proposed to empower the Nomination and Remuneration Committee of AMC to take decision based on the facts of the case.