The compensation practices, exclusively of enormous financial institutions, were one of the vital factors which contributed to the contemporary global financial crisis. Employees were often rewarded for increasing the short-term profit without sufficient recognition of the risks and long-term consequences that their activities posed to the organizations. These obstinate incentives intensified the excessive risk taking that rigorously endangered the global financial system. Thus compensation issue has become the Centre juncture of the regulatory reforms.
The Basel Committee on Banking Supervision (BCBS)in May 2011 conveyed the a consultative paper to all the Central Banks of member states of BCBS which is titled “Range of Methodologies for Risk and Performance Alignment of Remuneration” and in July 2011 the BCBS in consultation with the FSB has also published “Pillar 3 disclosure requirements for remuneration”. The guidelines of Reserve Bank on compensation policy were issued by RBI on 13 January 2012 for Private Banks and Foreign Banks operating in India after considering all publication from Basel Committee and FSB on Banking Supervision and considering the compensation aspects of Indian Banks. An attempt has been made in this paper to explain the Guidelines issued by the Reserve Bank of India on Compensation Managements system of Foreign Banks and Private Banks operating in India and the Principles which have formed the basis of these Guidelines. This paper could be considered as vital seed to existing branch of knowledge in Banking Industry and would be useful for Scholars, Strategist, Bankers, Policy Architects and Researchers.
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