As per current regulations, the variable pay component of KMPs at MIIs must be 25 percent to 50 percent of total pay
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FRANCIS MASCARENHAS
SEBI is considering letting stock exchanges, clearing corporations and depositories reduce variable incentives for senior management below the 25 per cent floor in poor performance years, people aware of the development said.
As per current regulations, the variable pay component of KMPs at MIIs must be 25 per cent to 50 per cent of total pay. Half of which is deferred for three years and subject to malus and clawback arrangements that allow recovery of incentives in case of misconduct or material misstatement.
The market regulator plans to clarify that the existing range of variable pay will be applicable only for finalising overall compensation structure of each KMP. The actual payout, however, may be less than 25 per cent subject to various factors including the performance of the KMP and financial health of the MII.
Concerns raised
This follows concerns raised by MIIs that the floor is being interpreted as a guaranteed minimum payout—even when an institution’s performance, financial or market condition do not justify such incentives.
“It is difficult to meet the minimum requirement of variable pay in all cases, especially when conditions are tough,” an MII source said. “The actual payout may be less than 25 per cent of even nil sometimes.”
The regulator may also allow any additional or one-time compensation granted to executives to be clubbed under variable pay. However, the variable pay ceiling may remain restricted at 50 per cent, another source said.
“Variable pay is a component of the overall compensation structure, but that does not create an automatic right to receive the minimum payout,” said a SEBI source. “Payment of variable pay may vary as it depends on various factors, including the performance of the KMP and financial health of the MII.
MIIs have sought flexibility for cases when the minimum expected performance level is not met by either an individual or the MII, if the KMP(s) are appointed during the later part of the financial year, or early resignations by KMPs. They have also requested for the floor to be lowered to 0-50 per cent.
The regulator is expected to issue a consultation paper soon, clarifying the rules in a way that gives MIIs flexibility in lean years while maintaining the current range for compensation structure.
The range was introduced in SEBI regulations in 2023, replacing the earlier ceiling of one-third of total pay, based on a slew of recommendations made by a committee chaired by former whole-time member G Mahalingam. The overhaul was aimed at improving governance and accountability at MIIs following several lapses at the National Stock Exchange (NSE) while Chitra Ramkrishna was at the helm of the exchange.
Published on September 7, 2025
