Mumbai: A regulatory glare on salaries and bonuses has forced foreign banks operating in India to change the way they pay their employees.
At least two of them, Citibank NA and Bank of America Corp., have increased basic salary of staff by adding part of the bonus component to the salary. For instance, if an employee was getting Rs100 as bonus, Rs50 is now added to the base salary and Rs50 is being given as variable pay, disbursed in stocks and cash over a period of time.
There has been an outcry across the world at the huge salaries and bonuses paid to bankers—widely seen as the professionals responsible for the financial crisis of 2008 that set off a global economic meltdown.
Even though the banking system in India was largely unaffected by the global slowdown and there has been no problem in terms of liquidity and capital, the Reserve Bank of India (RBI) had articulated its desire to set guidelines for salaries of private and foreign banks in its second quarter review of the monetary policy for 2009-10.
Foreign banks in India account for a little less than 7% of banking assets, but have a huge talent pool. Many senior bankers in Indian private sector banks have worked with foreign lenders. The salaries and wages of employees of public sector banks, which account for 70% of banking assets, are governed by an industry-wide wage pact.
“Any salary adjustments are not intended to increase total annual compensation, rather to adjust the balance between fixed and variable compensation,” a Citi spokesperson said in an emailed response.
A Bank of America spokesperson declined to comment.
Most of the foreign banks, including Citibank and Bank of America, have announced a salary increase in the range of 15-30% for 2010.
While Mint could not ascertain the salary hike at Hongkong and Shanghai Banking Corp. Ltd, one of the leading foreign banks in India, JPMorgan Chase and Co. has announced a 70% increase in salary. The JPMorgan spokesperson did not offer any comment.
Standard Chartered Bank and Deutsche Bank AG are expected to announce a 30% pay hike.
A Standard Chartered Bank official, who declined to be named, said the annual salary revision will happen in March and there will not be any restructuring in the compensation package.
“The salary increases are in the range of 10-30%, depending on the seniority and positions of employees,” a Citibank executive said on condition of anonymity.
RBI has also sought information from banks on how they decided the salaries and bonuses of people heading the treasury department—a key division responsible for generating a significant portion of a bank’s profits.
“Bonus attracts attention of the media and politicians. Hence, these banks have increased the base salary of employees,” said the chief executive of a human resource firm, who declined to be named as his firm places employees at foreign banks. “However, this will increase the cost for banks as when the basic salary goes up, the cost of pension and other contributory benefits rise.”
“They also have to retain and attract talent in India, which is a growing market and a major contributor to the banks’ profits. The foreign banks are following a middle path in a tough regulatory environment,” he added.
RBI is working in consonance with standards defined by the Financial Stability Board (FSB) on compensation. FSB, consisting of senior representatives of national financial authorities such as central banks, regulatory and supervisory authorities and finance ministries, among others, was established in April to address vulnerabilities, and develop and implement strong regulatory and supervisory policies to maintain financial stability.
FSB principles on compensation, which have been endorsed by the Group of Twenty countries, have proposed that bonuses and incentives be paid over a period of time.