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

A report found that only 11 per cent of 541 Singapore-listed firms offer top executives long-term incentives.
A report found that only 11 per cent of 541 Singapore-listed firms offer top executives long-term incentives.PHOTO: ST FILE

Few Singapore firms reward their chief executives with long-term incentive plans while there is a "significant misalignment" between a firm's profitability and the boss' pay, according to a new report.

It found that only 11 per cent of 541 Singapore-listed firms offer top executives long-term incentives.

The annual report also noted that the median total pay for CEOs remained at $625,000 for the 2016 financial year, little changed from the previous 12 months.

Human resources consultancy firm Korn Ferry Hay Group carried out the survey, which studied CEO remuneration data from local firms that filed annual reports between May 1 last year and April 30 in nine sectors, including commerce, construction and manufacturing. It compared the findings with its study of CEO compensation at 300 of the largest US-listed companies.

The total direct compensation - which includes salaries and bonuses among other things - for United States bosses hit US$12.5 million (S$16.8 million) in the 2016 financial year, up 4.2 per cent on the previous year. It said the increase was almost entirely owing to a 4.4 per cent rise in what is called the grant-date fair value of long-term incentives. It added that base salaries at such firms grew only 0.8 per cent. The long-term incentives at US firms "were by far the largest component of CEOs' pay, representing 66 per cent of their total direct compensation".

The report here noted 31 per cent of Singapore firms did not pay their CEOs bonuses in the 2016 fiscal year while 21 per cent paid them despite incurring losses. Almost 70 per cent of the 11 per cent of firms that offered long-term incentives were large firms, 19 per cent were medium- sized, 5.2 per cent small while Catalist companies made up 6.2 per cent.

About 32 per cent of the firms here that paid bonuses gave out higher amounts in 2016 than in 2015, even though profits were lower. This showed "a significant misalignment between company profitability and CEO pay", it said.

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.

Rachael Boon

A version of this article appeared in the print edition of The Straits Times on September 14, 2017, with the headline 'Few firms here offer CEOs long-term incentives: Poll'. Print Edition | Subscribe