ICICI Bank-Chanda Kochhar row: Bonus clawbacks of CEOs unheard of, but provisions exist

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ICICI Bank-Chanda Kochhar row: Bonus clawbacks of CEOs unheard of, but provisions exist

The ICICI Bank board took a decision on January 30 to claw back all bonuses paid to former MD & CEO Chanda Kochhar paid from April 2009 until March 2018. Being an unprecedented move in the country, this decision was taken after an inquiry panel found her in violation of the bank’s code of conduct. While such a board action is unheard of, this clause is usually part of the employment contracts of senior executives.

Human resource officials Moneycontrol spoke to said when it comes to performance bonuses, the company has a right to retrieve a part or whole of it for any violation-related issues.

“Performance bonuses are given to chief executives subject to certain terms and conditions. If there is a violation that is proven against a person, it is difficult to justify any bonuses paid,” said the head of a large executive search firm.

However, in India, there has not been any such instance where a chief executive’s bonuses have been taken back. Also, since bonus is at the discretion of the organisation, legally contesting it would not be a viable option according to a senior compensation benefits lawyer.

ICICI Bank told the exchanges that the inquiry report found her in violation of its framework for dealing with conflict of interest and fiduciary duties, and in terms of applicable Indian laws. The inquiry report also concluded that her lack of diligence with respect to annual disclosures led to the bank’s processes being rendered ineffective by her approach to such disclosures and avoidance of conflict.

Even in October 2018, when the bank’s board accepted Chanda Kochhar’s request to seek early retirement, they had clarified that certain benefits will be subject to the outcome of the inquiry.

Globally, regulations stipulate that any excess compensation paid to an executive can be retrieved. The Companies Act 2013 has a similar position.

However, performance differs from one company to the other. A few organisations refer to not just their own performance, but also look at their numbers vis-à-vis the competitors and the industry growth.

“Large banks have provisions for clawback of the additional compensation if there is a serious governance issue that the CEO is involved in. Since this is not a part of the labour law, it will be difficult to challenge this,” said the head of compensation at a human resource consulting firm.

Apart from the bonuses, Kochhar may also lose her stock options as well as perks provided to her as the chief executive.

Images are for reference only.Images gathered automatic from google.All rights on the images are with their original owners.

2019-02-02 21:27:22

Images are for reference only.Images gathered automatic from google.All rights on the images are with their original owners.

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