CEO pay at Singapore-listed firms not aligned with performance: HR report

31% of local firms paid their CEOs bonuses despite incurring losses and of this, a third gave higher amounts despite decreased profits.
The Straits Times

Are CEOs still receiving incentives even when their company is not faring well? Could they be taking home an even fatter bonus despite shrinking profits?

That appears to be the case for some Singapore-listed firms, according to a study conducted by Korn Ferry Hay Group, a global HR consultancy firm based in the US.

The study surveyed remuneration data of 541 Singapore-listed firms that filed their annual reports between May 1, 2016, and April 30 this year, comparing findings with a previous study of CEO compensation at 300 of the largest US-listed companies.

A total of 9 sectors were studied, including commerce, construction, finance, hotels/restaurants, manufacturing, multi-industry, properties, transportation/storage/communication and others.

The study noted that only 11% of the companies polled rewarded their top executives with long-term incentives (LTIs) in 2016 and 70% of them were large firms, 19% were medium-sized, 5.2% small while 6.2% were Catalist companies, according to a report by The Business Times.

This is compared to the US where 66% of CEO pay comprised of LTIs, and total direct compensation hit S$16.8 million (US$12.5 million) in 2016, an increase by 4.2% from the previous year. The report said it was due to a 4.4% rise in the grant-date fair value of LTIs.

However, the most damning finding was how 31% of local firms paid their CEOs bonuses in 2016 despite incurring losses. Of this, a third (32%) gave higher amounts in 2016 than in 2015 despite reporting lower profits. 

This showed “a significant misalignment between company profitability and CEO pay”, the report said.

In the BT report, president of the Singapore Human Resource Institute, Mr Erman Tan, said: “You have to understand that shareholders’ participation (in Singapore) is not as active as in the US.”

The shareholder community in Singapore does not monitor CEO’s pay compared to US corporate culture where CEOs are rewarded based on share performance, he added.

Shareholders here tend to leave it to the board of directors to oversee the company, in the belief that they will do a good job, said Mr Tan. There is no external drive to change the situation and directors here do not face probing questions, he added.

According to a quote carried by The Straits Times, Mr Kevin Goh, a senior client partner at Korn Ferry Hay, said: “Remuneration committees need to address the enhanced scrutiny from corporate governance activists, with added emphasis on pay-for-performance and ultimately sustainable performance in the long term.

“Having a long-term incentive plan emphasises the point that ‘top executives need to balance both the short- and long-term sustainability of the company,” he added.