SEBI softens skin in the game rules, comes up with slab based mandatory investments

The Securities and Exchange Board of India (SEBI) has softened the "skin-in-the-game" rules for asset management company (AMC) employees. These rules will replace the framework that came into force in July 2021 which required AMCs to pay 20% of senior executives' salaries in units of the schemes they manage. SEBI has replaced the old system by a new slab-based system now. It noted that employees with a gross cost-to-company (CTC) of less than Rs 25 lakh (slab 0) face no mandatory investment. For employees with CTC of Rs 25-50 lakh (slab 1), 10% of gross CTC or 12.5%, excluding employee stock ownership plans (Esops), have to be invested in overseen schemes. It noted further that employess with CTC in the range of Rs 50 lakh to Rs 1 crore (slab 2) need 14% (or 17.5% excluding Esops) to be invested; while those with CTC above of Rs 1 crore (slab 3) must invest 18% (or 22.5% excluding Esops) in overseen schemes.

Further, AMC employees are now categorised into two groups. 'Category A' includes chief executive officers (CEOs), chief information officers, fund managers, and key investment staff. These will follow the stab system based on their CTC. Category B, comprising those who directly report to the CEO, and heads of non-investment departments, will be limited to slab 0 or slab 1, regardless of CTC. Employees managing liquid fund schemes will adhere to slab 1, even if their CTC qualifies for higher slabs.

SEBI noted that the new rules will also adjust lock-in periods. For employees retiring at superannuation age, the lock-in will be waived, except for units in closed-ended schemes. For those resigning or retiring early, the lock-in will be reduced to one year from the end of employment or the completion of the existing three-year period, whichever comes first. AMCs must disclose the total compensation invested in scheme units by designated employees on stock exchange websites within 15 days of each quarter's end.

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