Document Control Authorization

Document Name Compensation Policy

Version 1.6

Review Date 19-Mar-2021

Document Owner Head – Compensation and Benefits

Document Approver CHRO

Frequency of Review –Yearly

Ownership: Head – Compensation and Benefits

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 Compensation Policy – HDFC Bank
Version 1.6

1. Compensation Philosophy ……………………………………………………………………………...3

2. Compensation Governance……………………………………………………………………………..3

3. Compensation Structure…………………………………………………………………………………5

4. Guaranteed Bonus………………………………………………………………………………………….9

5. Severance Pay………………………………………………………………………………………………..9

6. Hedging…………………………………………………………………………………………………………9

7. Employee Stock Option Plan - Wholetime Directors and Material Risk Takers......9

8. Risk Control and Compliance Staff…………………………………………………………………..10

9. Other Categories of Staff………………………………………………………………………………....10

10. Benefits……………………………………………………………………………………………..................11

11. Variable Pay…………………………………………………………………………………..…………..….12

12. Employee Stock Option Plan – Employees……………………………..….…………………….15

13. Compensation Review…………………………………………………………………………….……...16

14. Reporting / Disclosures………………………………………………………………………………….17

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 Compensation Policy
This compensation policy document is based on the sound compensation principles and practices
applied by the Bank and in accordance with RBI guidelines contained in their circular dated 4th
November, 2019. The policy aims to provide a framework to create, modify and maintain
appropriate compensation programs and processes with adequate supervision and control.

1. Compensation Philosophy:
Compensation is one of many human resource tools that organizations use to remunerate and
incentivize their employees. The Bank’s corporate mission is to be a world class Indian Bank. Our
ability to attract, retain, reward and motivate talented individuals is critical for achieving our
strategic goals and long term success. Compensation policy must be aligned to business strategy,
market dynamics, internal characteristics and complexities within the firm. The ultimate objective
is to provide a fair and transparent structure that helps it to retain and acquire the talent pool
critical to building competitive advantage and brand equity.

The Bank’s approach is to have a pay for performance culture based on the belief that the
performance management system provides a sound basis for assessing performance holistically.
The compensation system should also take into account factors like roles, skills / competencies,
experience and grade /seniority to differentiate pay appropriately on the basis of contribution, skill
and availability of talent on account of competitive market forces.

2. Compensation Governance
The Bank’s Board of Directors will actively oversee the compensation system’s design and
operations. The Board of Directors will also monitor and review the compensation system to ensure
the system operates as intended and is also consistent with the FSB principles. Compensation would
also be aligned with prudent risk taking.

The Bank will also ensure that the staff engaged in financial and risk control will be independent,
have appropriate authority and be compensated in a manner that is independent of the business
areas they oversee and commensurate with their key role in the Bank.

The Nomination and Remuneration Committee of the Board shall have supervisory oversight
regarding implementation of compensation practices and policies of the Bank. The Compensation
and Benefits unit within the Human Resources function will administer the compensation policy by
following rules and processes that are objective and transparent.

The compensation structure and pay revision for Whole Time Directors and Managing Director will
be approved by the Nomination and Remuneration Committee. Supervisory review of
compensation practices will be rigorous and sustained; any deficiencies would be addressed

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 promptly with supervisory action. For the purpose of this policy, the term Whole Time Directors
would include Executive Directors.

2.1 Nomination and Remuneration Committee:

The Board of Directors will have a separate committee for overseeing and governing the
compensation practices of the organization. The following shall be the composition of the
Nomination and Remuneration Committee.

i. The Nomination and Remuneration Committee will consist of Chairman of the Board.
ii. In addition to the Chairman there would be three Independent Directors.

It will also be ensured that at least one member of the Risk Management Committee of the Board is
also a member of the Nomination and Remuneration Committee. Further, the Nomination and
Remuneration Committee shall co-ordinate with the Risk Management Committee with the
objective of suitably aligning compensation with prudent risk taking. The Nomination and
Remuneration Committee shall ensure that the cost/income ratio of the bank supports the
compensation package consistent with maintenance of sound capital adequacy ratio.

2.2 Definitions:

Wholetime Directors: The Managing Director and the Executive Director would be addressed as
Wholetime Directors in this policy.

Material Risk Takers: The bank would identify the Material Risk Takers (MRTs) based on the
Standard Qualitative Criteria and Standard Quantitative Criteria as prescribed by the RBI.

1. Standard Qualitative Criteria : Identification is based on the role and decision making power
of staff members (e.g Senior Manager, Member of Management body ) having jointly or
individually, the authority to commit significantly to risk exposures. This would comprise
employees in the Executive Vice President (C1)and above levels and select employees in the role
of Business Heads and Treasury Desk Heads in job band Senior Vice President -2(D5) .

2. Standard Quantitative Criteria : the bank has decided to opt for the following clause of the RBI
guidelines to determine the quantitative criteria. “The total remuneration exceeds a certain
threshold, the determination of which may be done prudently by the bank.” The bank has fixed
this threshold value at Rs. 80,00,000 of fixed pay. The Employees meeting the Standard
Qualitative Criteria and whose Fixed Compensation exceeds or equals 80 Lacs shall be classified
as Material Risk Takers.

Risk Control and Compliance Staff: Employees in the bank belonging to the Risk, Internal Audit,
Compliance, Finance, Human Resources and Fraud and Vigilance

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 3. Compensation Structure
3.1 Whole Time Directors and Material Risk Takers:

For Whole Time Directors and Material Risk Takers, the Compensation structure will be determined
by the Nomination and Remuneration Committee who will ensure that:
 Compensation is adjusted for all types of prudent risk taking
 Compensation outcomes are symmetric with risk outcomes
 Compensation payouts are sensitive to the Time Horizon of the Risk
 The mix of cash, equity and other forms of compensation will be consistent with risk
alignment

The Bank has elaborated in its Risk Appetite Statement, its focus on steady/sustainable earnings
growth through a good risk-reward balance, appropriate risk management techniques and low cost
of funding. In addition, the bank intends to optimize revenue derived from trading activities so as
to moderate earnings volatility. In line with this philosophy the organization by design is geared to

i. Maintain earnings growth with strong Asset Quality through disciplined risk management.
This is further emphasized by the independence of the Credit and Market Risk Functions
from the Sales /Business/Revenue generation functions.
ii. Ensure that the appetite for material risks assessed by the Bank will be in line with the bank
level appetite for maintaining high credit ratings.

The compensation structure shall broadly comprise of the following components.

A. Fixed Pay
B. Variable Pay

3.1. A Fixed Pay:

The Bank will ensure that the fixed portion of compensation is reasonable, taking into account all
relevant factors including the industry practice. In order to follow the aforementioned principles,
the Bank will take into consideration the following parameters

i. Role Complexity and Size

ii. Vintage and experience of the incumbent
iii. Profile and prominence of leadership among industry leaders
iv. Comparison with peer banks i.e. market competitiveness of pay
v. Consistency of the Bank’s performance over the years on key parameters such as
profitability, growth and level of Non-Performing Assets (NPA’s) in relation to its own past
performance and that of its peer banks

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 Components of Fixed Pay:

The Fixed Pay of the organization would typically consist of elements like Base Salary,
Allowances, Perquisites, Benefits and Retirement benefits.

In addition to the various cash components (salary, allowances etc.) the organization would also
offer certain perquisites. The perquisites extended would be in the nature of Company Car, Hard
Furnishing, Company Leased Accommodation, Club Memberships and such other benefits or
allowances in lieu of such perquisites/benefits as may be defined in the Bank’s Human
Resources policy and as may be approved by the Board. The quantum of fixed pay based on the
above considerations will be approved by the Nomination and Remuneration Committee and
the Board and will also be subject to approval by the Reserve Bank of India (RBI).

Keeping in mind the organization’s belief in providing post-retirement benefits as well as to

meet its statutory obligations as an employer the organization will provide the following Defined
Contribution and Defined Benefit Plans.

i. Provident Fund – Statutory, Defined Contribution Plan

ii. Superannuation – Non Statutory, Defined Contribution Plan
iii. Gratuity – Statutory, Defined Benefit Plan
iv. Any other additional benefit as approved by the Nomination and Remuneration
Committee of the Board.

The above shall be maintained and managed as per the prevailing Statutory Rules and Trust
Rules governing them.

In case of absence or inadequacy of profit in any financial year, the aforesaid remuneration and
perquisites shall be paid to the Wholetime Director as minimum remuneration. The organization
would like to define inadequacy of profits in the following manner

In the event the cumulative fixed remuneration of Wholetime Directors, in a given financial year,
exceeds or is equal to 10% (or any such cumulative limit as prescribed by the Companies Act, 2013
and as amended from time to time) of the profits, as computed under section 198 of the Companies
Act 2013, for the given financial year, the profits in such a year shall be deemed to be inadequate.

3.1. B Variable Pay:

(a) Composition of variable pay

The variable pay will be in the form of share linked instruments (ESOPs) or a mix of cash and share
linked instruments. The Bank will ensure that there is a proper balance between Fixed Pay and

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 Variable Pay. In cases where compensation by way of share-linked instruments is not permitted by
law/regulations, the entire variable pay will be in cash.

(b) Limits on variable pay

A substantial portion of compensation i.e. at least 50% will be variable and paid on the basis of
individual, business-unit and organization performance. This will be in line with the principle that,
at higher levels of responsibility, the proportion of variable pay will be higher. The total variable
pay shall be limited to a maximum of 300% of the fixed pay (for the relative performance period)

In case the variable pay is up to 200% of the fixed pay, a minimum of 50% of the variable pay; and
in case the variable pay is above 200%, a minimum of 67% of the variable pay shall be via non-cash
instruments.

In the event that the employee is barred by statute or regulation from grant of share-linked
instruments, his/her variable pay will be capped at 150% of fixed pay but shall not be less than 50%
of the fixed pay.

(c) Deferral of variable pay

For senior management including Wholetime Directors (WTDs) and Material Risk Takers (MRTs),
deferral arrangements will exist for the variable pay. A minimum of 60% of total variable pay will
be under deferral arrangements. If cash component is a part of the variable pay, at least 50% of the
cash bonus shall be deferred. In cases where cash component of the bonus is under Rs 25 lakh,
deferral arrangements would not be necessary.

The deferral period would be a minimum of three years and will be applicable to both cash and non-
cash components of variable pay. The deferral period for share linked instruments/ESOPs will be
governed by the ESOP Scheme Rules which will be approved by the Nomination and Remuneration
Committee and the Board.

(d) Vesting of variable pay

The deferred portion of the remuneration will vest at the end of deferral period and will be spread
out over the course of the deferral period. The first vesting would not be before one year from the
commencement of the deferral period. The vesting would be no faster than on a pro rata basis and
the frequency of the vesting would be more than a year in order to ensure appropriate assessment
of risk.

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 Malus / Clawback Arrangement:

The Bank believes in sustained business performance in tandem with prudent risk taking. The Bank,
therefore, has devised appropriate deterrents in order to institutionalize the aforementioned
commitment.

Malus Arrangement: The provision of a Malus arrangement would entail cancellation of payout for
the deferred portion of reward (variable pay/long term incentive (LTI))

Clawback Arrangement: The provision of Clawback arrangement would entail return of payout of
reward (variable pay /LTI) made in the previous years attributable to a given reference year
wherein the incident has occurred. The return would be in terms of net amount

Illustrative list of conditions are enumerated below. The occurrence of any/some/all of the
following conditions shall trigger a review by the Nomination and Remuneration Committee for the
application of the Malus or the Clawback arrangement:

a) Substantial Financial Deterioration in profitability or risk parameters

b) Reckless, negligent or willful actions or exhibited inappropriate values and behavior
c) Fraud that requires a financial restatement
d) Reputational harm
e) Exposing the bank to substantial risk
f) Additional NRC defined conditions

As per the RBI guidelines on compensation, wherever the assessed divergence in bank’s
provisioning for Non-Performing Assets (NPAs) or asset classification exceeds the prescribed
threshold for public disclosure, the bank shall not pay the unvested portion of the variable
compensation for the assessment year under ‘malus’ arrangement. Further, in such situations, no
proposal for increase in variable pay (for the assessment year) shall be entertained. In case the
bank’s post assessment Gross NPAs are less than 2.0%, these restrictions will apply only if criteria
for public disclosure are triggered either on account of divergence in provisioning or both
provisioning and asset classification.

The NRC may decide to apply malus on part, or all of the unvested deferred bonus amounts and
LTIP. The time horizon for the application of malus/clawback clause shall be four years from the
date of reward.

The Nomination and Remuneration Committee shall review the act of misconduct/incident to
ascertain the degree of accountability attributable to a Director prior to applying the Malus or
Clawback arrangement.

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 The criteria for Malus /Clawback will be reviewed by the Nomination and Remuneration
Committee annually.

4. Guaranteed Bonus:
For hiring at levels of Whole Time Directors/ Managing Director and key strategic positions, the
sign-on bonus, if any, would be limited to the first year only and would be in the form of Employee
Stock Options.

5. Severance Pay:

The bank will not grant severance pay other than accrued benefits (Gratuity, Pension) except in
cases where it is mandatory by any statute.

6. Hedging:

The Bank will not provide any facility or funds or permit employees to hedge their compensation
structure to offset the risk alignment effects embedded in their compensation arrangement. The
Bank would establish appropriate compliance measures to meet the above requirements.

7. Employee Stock Option Plan (ESOP) – Wholetime Directors and Material Risk
Takers :

Employee Stock Option will be considered as a part of variable pay for Whole Time Directors and
Material Risk Takers in line with the guidelines prescribed by the Reserve Bank of India. The norms
for the grant of ESOPs will be in conformity with the relevant statutory provisions, SEBI guidelines
and the scheme approved by the Board. The distribution of ESOPs will be reviewed each year by the
Nomination and Remuneration Committee of the Board. While Granting the Options, the
Nomination and Remuneration Committee would inter alia take into consideration the grade,
performance, conduct and such other appropriate relevant factors as may be deemed appropriate
by it. The number of Options made available to Managing Director and Whole Time Directors could
vary at the discretion of the Nomination and Remuneration Committee after considering various
parameters as mentioned above. The allocation principle would also be aligned to the need for
higher quantum of grant at higher levels for long-term strategic contribution. The Bank will also
ensure that it will comply with all ESOP related disclosure requirements as per the RBI guidelines
pertaining to Compensation Policy.

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 8. Risk Control and Compliance Staff

It has been a constant endeavor of the bank to have a robust Risk Management and Control
Mechanism. Basis the spirit of this intent the organization has separated the Risk and Control
Functions from the Business functions.

This primarily serves the following purpose

1. It creates a strong culture of checks and balances ensuring good asset quality
2. It eliminates any possible conflict of interest between revenue generation and risk
management and control

Further the overall Variable Pay as well as the annual salary increment of Risk Control and
Compliance Staff would be based on the performance on functional objectives and goals. The Bank
shall ensure that the mix of fixed to variable compensation for control function is weighted in favour
of fixed compensation and in line with the RBI guidelines.

9. For Other Categories of Staff:

9.1 Fixed Pay:

The bank shall endeavor to ensure that fixed pay reflects the following determinants of pay.
1. Job
2. Grade
3. Qualification
4. Performance
5. Experience
6. City Class
7. Market Pay Position

It is the intent of the bank to provide a fixed pay salary structure that meets the following objectives

1. Fair Compensation given the role complexity and size, individual’s skill, competence,
experience and market trends
2. Ensure sufficient contribution towards post-retirement benefits
3. Tax Efficiency
4. Comply with all statutory obligations

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 9.2 Elements of Fixed Pay:

The Fixed Pay of the organization would typically consist of elements like Base Salary, Allowances,
Perquisites, Benefits and Retirement benefits.

The organization, as a philosophy, aspires to maintain consistency with respect to structure of pay.
The organization however understands that in order to attract and retain talent in certain key
businesses and roles, it may need to make changes to the components mentioned above. All such
changes would be approved by the appropriate authority i.e. Nomination and Remuneration
Committee/ Managing Director/Whole Time Director or Human Resources personnel as per
powers delegated.

In addition to the various cash components (salary, allowances etc.) the organization would also
offer certain perquisites to employees depending on the Job Band (grade) of the Individual. The
perquisites extended would be in the nature of Company Car, Hard Furnishing, Company Leased
Accommodation, Club Membership and such other benefits as may be defined by the Human
Resources function and approved by the appropriate authority i.e. Nomination and Remuneration
Committee/ Managing Director/Whole Time Director or Human Resources personnel as per
powers delegated.
In order to meet its statutory obligations as an employer, the organization will provide the following
Defined Contribution and Defined Benefit Plans.

A. Provident Fund – Statutory, Defined Contribution Plan

B. Superannuation – Non Statutory, Defined Contribution Plan
C. Gratuity – Statutory, Defined Benefit Plan
D. NPS – National Pension Scheme

The above shall be maintained and managed as per the prevailing Statutory Rules and Trust Rules
governing them.

10. Benefits

Employee wellbeing is an integral part of the Bank’s policy. Apart from the cash compensation and
perquisites, the organization is committed to assist employees and their dependents to meet
unforeseen and adverse life events both from a perspective of employee health and financial
difficulty. To tide over such life events the organization would provide assistance via medical
insurance and loans like Housing Loans, Personal Loans and Vehicle loans at concessional rates as
may be defined by the Human Resources function and approved by the appropriate authority i.e.
the Nomination and Remuneration Committee / Managing Director / Whole time Director or

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 Human Resources Personnel as per powers delegated. The organization also believes that such
policies are key in building goodwill for the organization among the employees.

11. Variable Pay

The Bank recognizes the importance of variable pay in reinforcing a pay for performance culture.
Variable pay stimulates employees to stretch their abilities to exceed expectations. Variable pay is
discretionary and may be even zero.

Guaranteed bonuses are not consistent with the sound risk management or pay- for performance
principles of the organization and therefore will not be an integral part of the general compensation
practice.
The organization recognizes that a sound performance management system forms the very basis of
a robust compensation delivery system. The organization shall ensure that the performance
management system is as comprehensive as possible in order to assess performance from a
Quantitative as well as Qualitative standpoint based on the role of the employee. The organization
shall ensure that regulatory compliance and risk management is a key input area in the performance
management system on which performance of every employee is determined in the Bank.

Adherence to regulatory compliance and risk management requirements are key performance
measures which are incorporated in the performance assessment of all employees across all levels
in the Bank The degree of assessment will vary across the levels with the increase in magnitude of
assessment at the senior levels.

For employees in all job bands, performance is measured on adherence to regulatory, compliance
and risk management requirements. Regulatory compliance is an organization’s adherence to laws,
guidelines, regulations and specifications relevant to its business processes. Risk compliance is
adherence to the organization’s risk management policies and procedures.

For employees in job bands C1 and above, performance evaluation on regulatory compliance and
risk management requirements broadly entail the following:
1. Ensuring implementation of process and procedures that will ensure strict regulatory and
internal risk management compliance.
2. Ensuring processes are reviewed to keep up with the regulatory and internal risk
management requirements.
3. Create a culture where employees are advised to report any areas of non-compliance and
breach in risk policies / limits.
4. Ensuring appropriate accountability exercise carried out for any instances of non-
compliance and breach in risk policies / limits.

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 5. Ensuring framing and implementation of appropriate policy and procedure for ensuring
regulatory and internal risk management compliance and driving compliance and risk
culture across business verticals/ Bank.

For employees in job bands D1 and above, in addition to the above mentioned criteria, the
performance management system also incorporates qualitative feedback from the line manager in
instances of non-compliance/regulatory concerns/Penalty levied / breaches of internal risk policy
or limits as applicable and relevant to the employee in the overall performance assessment of the
concerned employee.

The performance rating on the regulatory compliance and risk management section comprises of a
binary rating scale which mentions either the employee has ‘met expectations’ in the particular area
or has ‘not met expectations’. Before arriving at a reward decision, due weightage will be given to
adherence to regulatory compliance and risk management guidelines by the Bank.

The quantum of Variable Pay is a function of the Bank’s, business unit’s and the individual’s
performance. Basis these key determinants, the overall budget and due adjustment for risk the
payout matrix would be developed. Study of market trends for specific business/functions along
with inputs from compensation surveys will be used in finalizing the payout.

The Bank may formulate appropriate Variable Pay Plans linked to performance, role, and function.
The variable pay plan may be in the following two forms

A. The Annual Bonus Plan – The Annual Bonus scheme is for those employees who are not
covered by the Quarterly Performance Linked Pay plan. The Performance Management
System forms the core input to the Variable Pay allocation of the organization. There could
be a possibility that employees switch from the Quarterly Sales Performance Linked Pay
plan to the Annual Bonus plan due to change in their respective roles. In such cases the
Annual Bonus payout shall be pro-rated. Bonus pools may be designed to meet specific
business needs therefore resulting in differentiation in both the quantum and method of
payout. The bank will ensure that the Time Horizon for Risk would be assessed for each of
the functions and the deferment period for bonus would be set accordingly. It shall be the
constant endeavor of the bank to ensure higher proportion of variable pay to fixed pay at
higher levels of responsibility.

B. The Quarterly/Monthly Performance Linked Pay Plan (PLP) – Performance Linked Pay
plans may be formulated for sales personnel who have origination/sales targets but limited
impact on risk as credit decisions are exercised independent of the sales function. Further
the Performance Linked Pay plans will factor in, where relevant, all necessary adjustments
for risk. In alignment with the principles of prudent risk management, the Performance

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 Linked Pay payouts are deferred till the end of the year and are released subject to the
attainment of the Bank’s business objectives. The PLP shall be governed as per Addendum
A.

The following will be taken into account while administering the Variable Pay

 In the event the proportion of variable pay to fixed pay is substantially high the organization
would, post taking into consideration the nature of risk, time horizon of risk, and the
materiality of risk devise an appropriate deferment schedule.

In cases of deferment of variable pay the bank would make an assessment prior to the due date
for payment of the deferred portion for any negative contribution. The criteria for negative
contribution would be decided basis predefined financial benchmarks. Appropriate methods
would be devised to decide on prevention of vesting of part or full of any portion of deferred
variable pay on account of negative contribution.

Performance Linked Variable Pay on confirmation

The Talent Acquisition team of the Bank hires external talent for managing critical roles in the Bank. A
key challenge in hiring is that the identified potential candidates have to incur cash losses in their
compensation in their previous organization while getting hired in HDFC Bank. Considering the
composition of our compensation structure, we would like to introduce a component of performance
linked variable pay on confirmation to compensate for such losses. However, these shall be limited to
employees in select roles and shall not be guaranteed in nature as guaranteed variable pay leads to
perverse incentives and are not consistent with principles of sound risk management. The payouts will
be based on defined performance criteria. The same shall be incorporated in the Compensation Policy
after the approval of the Nomination and Remuneration Committee.

Qualifying Criteria for Variable Pay on confirmation: The confirmation variable pay would be
subject to the performance of the incumbent on obtaining an Exceptional Contributor (EC)/ Strong
Contributor (SC) rating upon confirmation. In case, the employee receives Contributor rating (C) or
below at the time of confirmation, the employee would not receive any variable pay on confirmation.
Employees who would be eligible for such variable pay and the corresponding payout shall be approved
by Chief Human Resources Officer.

Retention: In the event, an employee does not spend three years or more with the Bank, the
aforementioned amounts shall be subject to recovery as per below table-

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 Time % of amount

Less than 1 year 100

>= 1 - <2 years 66

>= 2- < 3 years 33

>= 3 years 0

Quantum: The quantum of the variable pay will be as per the commitment made at the time of offer,
however the quantum will not exceed 30%-50% of the offered annual gross pay (without band perks
and cost of loans) of the employee.

12. Employee Stock Option Plan (ESOP) – Employees:

Employee Stock Option will be a part of variable pay for employees in line with the guidelines
prescribed by the Reserve Bank of India. The norms for the grant of ESOPs will be in conformity
with the relevant statutory provisions, SEBI guidelines and the scheme approved the Board. The
distribution of ESOPs will be reviewed each year by the Nomination and Remuneration Committee
of the Board. While Granting the Options, the Nomination and Remuneration Committee would inter
alia take into consideration the grade, performance, conduct of the Employee and such other
appropriate relevant factors as may be deemed appropriate by it. The number of Options made
available to a particular class/cadre/grade of Employees could vary at the discretion of the
Nomination and Remuneration Committee after considering various parameters as mentioned
above. The allocation principle would also be aligned to the need for higher quantum of grant at
higher levels for long-term strategic contribution. The Bank will also ensure that it will comply with
all ESOP related disclosure requirements as per the RBI guidelines pertaining to Compensation
Policy.

Grant of Employee Stock Options for key strategic hires

The objective of this policy is to grant stock options to new hires in key strategic positions as an
attraction and retention tool.

Criteria for Grant:

The criteria for grant of stock options to be adopted for new hires will be for those positions
recommended by the respective Group Head, CHRO, MD. The grant will be subject to NRC approval.

Quantum of Grant:

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 The quantum of grant will be as per the commitment made at the time of the offer.

Periodicity of Grant:

The grant will be processed in batches once a quarter.

The grant of employee stock options will be in conformity with the relevant statutory provisions,
SEBI guidelines and the scheme as approved by the Nomination and Remuneration committee of
the Board.

13. Compensation Review:

Fitment of New Hires

Pay ranges of the Bank are set basis the academic and professional credentials of the incumbent and
further on the specific Job Role and Competency skill sets of an individual.

The compensation of the new hires would be in line with the existing pay ranges and consistent
with the compensation levels of the existing employees of the Bank at similar profiles. The Pay
ranges could be subject to change basis market trends and organization’s talent management
priorities. While the Bank believes in the internal equity and parity as a key determinant of pay it
does acknowledge the external competitive pressures of the talent market. Hence, there would be
certain key profiles with critical competencies which might have to be hired at a premium and
treated as an exception to the overall pay philosophy. Any deviation from the defined pay ranges
would be treated as a hiring exception which would be required to be placed for approval with
appropriate justification to the compensation and benefits team.

Increments / Pay Revision:

It is the endeavor of the Bank to ensure external competitiveness as well as internal equity without
diluting the overall focus on optimizing cost. In order to enhance our external competitiveness, the
organization participates in an annual salary survey of the banking sector to understand key market
trends as well as get insights on relative market pay position compared to peers. It is our endeavor
to ensure that most employees progress to the Median of the market in terms of fixed pay over time.
This coupled with key internal data indicators like performance score, job family, experience, job
grade and salary budget form the basis of decision making on fixed pay.

The increments are decided basis guidelines agreed upon by the Top Management.

Increases in Fixed Pay for majority of the population is supposed to happen annually effective June
1 every year however there could be certain events like promotions, confirmations and change in
job dimensions that could lead to change in Fixed Pay during other times of the year.

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 The organization could also make salary corrections and adjustments during the year for those
employees whose compensation is found to be below the market pay and who have a good track
record with respect to performance. However, these would be done on an exception basis for select
individuals, subject to approval of the appropriate authority i.e. Managing Director/Whole Time
Director or Chief Human Resources Officer as per powers delegated.

Financial Censure:
Prior to any payout of any financial award to all employees like annual increment, variable pay
(annual bonus/ performance linked pay), recognition awards which are monetary in nature,
promotions, performance related rewards, salary corrections or adjustments etc., the Bank would
check for any act(s) of misconduct by the employees that may attract financial censure. In the event
the misconduct is marked for financial censure, the Bank may, depending on the gravity of the
censure in question, withhold part or entire award due to the employee.

14. Reporting / Disclosures:

The organization believes in balancing transparency and compliance with confidentiality. The
organization will ensure complete compliance with all disclosure norms as prescribed by the
various statutes relevant to the banking sector and industry in general.

Disclosure will also be made specifically basis Appendix 2 of the RBI Circular dated November 4,
2019 Disclosure details elaborated as per Annexure A.

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 Annexure A

Qualitative Disclosures
Information relating to the composition and mandate of the Nomination and Remuneration
A
Committee.
Information relating to the design and structure of remuneration processes and the key features
B
and objectives of remuneration policy.
Description of the ways in which current and future risks are taken into account in the
C remuneration processes. It should include the nature and type of the key measures used to take
account of these risks.
D Description of the ways in which the bank seeks to link performance during a performance
measurement period with levels of remuneration.
A discussion of the bank’s policy on deferral and vesting of variable remuneration and a
E discussion of the bank’s policy and criteria for adjusting deferred remuneration before vesting
and after vesting.
Description of the different forms of variable remuneration (i.e. cash and types of share-linked
F
instruments) that the bank utilizes and the rationale for using these different forms.
Quantitative Disclosures (For Chief Executive Officer / Whole Time Directors/ Other Risk
Takers)
Number of meetings held by the Nomination and Remuneration Committee during the financial
G
year and remuneration paid to its members.
(i) Number of employees having received a variable remuneration award during the financial
H
year
(ii) Number and total amount of sign-on/joining bonus made during the financial year.
(iv) Details of severance pay, in addition to accrued benefits, if any.
(i) Total amount of outstanding deferred remuneration, split into cash, shares and share-linked
I
instruments and other forms.
(ii) Total amount of deferred remuneration paid out in the financial year.
Breakdown of amount of remuneration awards for the financial year to show fixed and variable,
J
deferred and non-deferred.
(i)Total amount of outstanding deferred remuneration and retained remuneration exposed to ex
K
post explicit and / or implicit adjustments.
(ii)Total amount of reductions during the financial year due to ex-post explicit adjustments.
(iii)Total amount of reductions during the financial year due to ex-post implicit adjustments.
L Number of MRTs identified
(i)Number of cases where malus has been exercised
(ii) Number of cases where clawback has been exercised
M (iii) Number of cases where both malus and clawback have been exercised
The mean pay of the bank as a whole ( excluding sub-staff) and the deviation of pay of each of the
N WTDs from the mean pay

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 Addendum A– Policy Framework for Performance Linked Pay
The Sales PLP framework has been formulated to articulate the principles and guidelines for formulating
all PLP plans in the organization. Through this framework the bank also aims to ensure consistency and
alignment to the common PLP principles.

Key Pillars of the Policy Framework

The following are the key principles that must be considered while devising any PLP plan in the bank:
1. Eligibility
2. Factors to be considered for pay-out
3. Governance

1. Eligibility

PLP will only be applicable to frontline sales staff and not for sales supervisors. For the purpose of PLP
theses shall include
a. Sales Officers in the Bank
b. Permanent sales staff who do not have any other permanent sales staff reporting into them. Basically
permanent staff who are individual contributors.
c. Collections Staff in the Bank who are individual contributors.

No PLP should be paid for employees in non-sales roles. Any person who has resigned from the services
of the bank at the time of the pay-out shall not be eligible for any PLP related to the month /quarter or any
holdback payment as enunciated in Clause 2(c) of this guideline.

2. Factors to be considered for pay-out

Following factors should be considered for while determining the pay-out design

a. Balanced Scorecard: All PLP plans must adhere to the Balanced Scorecard Framework. This means that
all PLP plans must be based on Quantitative as well as qualitative factors. Further the PLP plans shall
include not only reward factors but also deterrents in order to ensure mitigation of risk and process
compliance.

b. Target Achievement and Productivity: All PLP plans should be aligned to achievement of targets. The
targets should further be aligned to business plans so that pay-outs are finally aligned to the achievement
of business goals and productivity to ensure a positive correlation between the PLP pay-out and plan
achievement. PLP should not be paid for any factor that does not have a target / productivity benchmark.
In the event PLP is being paid for cross sell than clear targets should be set for the same to ensure
qualification for pay-out.

c. Hold back: All PLPs should be governed by a hold back clause. This basically means that a certain % of
the PLP should be held back for the following reasons:

1. For year end achievement: A portion of the PLP should be held back conditional to the yearend target
achievement of the individual.

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2. For any mis-selling or disciplinary issue: Another reason for the holdback would any instance of mis-
selling or disciplinary issue coming to light post the sale.

d. Capping: All PLP plans should provide for capping i.e. all PLP plans must prescribe a maximum limit
with respect PLP earnings.

e. Periodicity of pay-out: All PLP plans to employees in E1–E4 grades would be paid out on a quarterly
basis. For Sales Officers it would be paid out on a monthly basis.

3. Governance
The following shall be the governance framework for all PLPs in the Bank:
a. Introduction of any PLP plan will need to be supported by a business case clearly articulating the
expected business goal. The same will need to be approved by FINCON and Human Resources. At the end
of every financial year the payout will be reviewed in light of the achievement of goals. The Business head
/ Fincon / HR will be part of the review team for the same.

b. Any changes to existing PLP plans will need to be supported again by a business case and approved by
Business Head, Product Head, FINCON and Human Resources.

c. All PLP plans (whether new or changed) will need to be signed off by the following. All exceptions will
also need the approval of the below:
1. Business Head
2. Human Resources
3. FINCON
4. Product Head

_____________________________________________________ ______________________________________________
Vinay Razdan Bardan Sharma
Chief Human Resources Officer Head – Compensation and Benefits

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