SEBI wants to change how MF executives' salaries are disclosed. Here's why

Capital market regulator SEBI has proposed to review and simplify disclosure rules related to executive salaries at asset management companies (AMCs) -- or the entities that offer and manage mutual funds. If enforced, the proposed changes could lead to the regulator doing away with employee-wise salary disclosures, only mandating fund houses to reveal the consolidated remuneration of chief executive officers (CEOs), chief investment officers (CIOs) and chief operating officers (COOs). Currently, AMCs are required to publicly disclose the names, designations and remuneration of their CEOs, CIOs, COOs, top 10 employees and employees earning above certain specified thresholds.

In its latest consultation paper on review of disclosures of executive remuneration, SEBI has proposed that AMCs -- or fund houses -- may be allowed to disclose only total employee count and aggregate remuneration.

Why has SEBI proposed these changes?

According to the market regulator, the objective of the proposals is to improve meaningful transparency while balancing investor interests and operational considerations.

An analysis by SEBI found that the existing disclosure framework covers only a small share of AMC employees, typically about 2-10 per cent of the workforce in most AMCs.

Currently, fund managers' pay is not disclosed separately. Investors can only find such information indirectly through disclosures of top-paid employees or employees above certain salary thresholds. Since fund managers make the key investment decisions for a scheme, there is an argument for greater transparency around their compensation.

SEBI has proposed that the total remuneration paid to a scheme's fund managers may be disclosed at the scheme level if an investor specifically demands it. The information would be shared only for the schemes in which that investor is invested at the time of the request.

Earlier, industry body AMFI sought certain changes in the existing rules, including disclosure of remuneration policies and streamlined reporting of senior employee compensation instead of individual-level disclosures. the mutual fund body suggested:

• Publishing AMC remuneration policies on company websites
• Consolidating disclosures related to key employees and the number of such employees
• Disclosing total fund manager remuneration at the scheme level only when requested by investors, and only for schemes in which they are invested

The MF industry argued that AMCs operate differently from listed companies and that detailed employee-level disclosures may not be fully relevant in a trust-based fund structure. Several industry participants had also raised concerns over employee privacy, potential misuse of personal remuneration data, and competitive disadvantages in attracting and retaining talent.

Disclosing executive pay is considered an important part of good corporate governance. It enables investors and other stakeholders to assess whether compensation is linked to performance, risk management and investor interests, and also allows them to question pay practices that may not be in line with industry norms.

In the domestic mutual fund industry, seven out of the total 53 AMCs are listed, while the remaining 46 are unlisted. Both listed and unlisted AMCs must follow executive remuneration disclosure requirements under SEBI's master mutual fund guidelines. Listed AMCs must also comply with additional disclosure requirements under SEBI's LODR regulations.

Under the proposed changes, AMCs will continue to disclose the CEO-to-median employee pay ratios and data on average assets under management (AAUM) in the existing format. In the mutual fund industry, AAUM is a key metric that determines the average total market value of the assets managed by the fund house over a specific period.

However, SEBI has proposed replacing individual name-wise remuneration disclosures with consolidated disclosures showing total remuneration and the number of employees covered in each category.

It has also proposed that scheme-level remuneration paid to fund managers be disclosed on request to investors, and limited to schemes in which those investors are invested.

The regulator has invited public comments on the consultation paper until June 30.