Companies should look into scope of executive pay

This is the season of annual general meetings as companies meet shareholders to account for their performance, or lack of, during the past financial year.

As the global economy struggles through a new normal of deflationary pressures and staid economic conditions, it is time for corporate Singapore to examine the scope of executive pay ("Are Singapore boards killing value?"; Tuesday).

Are we paying top executives too much? Are board members being paid too much for their mandatory governance work? Are executive salaries properly pegged to company performance?

Invariably, at almost every AGM, one of the hottest items on the agenda is directors' fees. This is especially so in companies that underperform for the year.

Minority shareholders, quite understandably, become inflamed and demand to see a proportional drop in directors' fees and executive compensation.

The question of whether boards are killing value is a legitimate one.

Excessive executive pay is, without doubt, one of the biggest obstacles to the restoration of trust in business.

When companies perform, by all means compensate accordingly, but the reverse must also hold true.

However, companies often tend to hold on to executive salary levels in bad times but increase them in good times.

Perhaps the Singapore Institute of Directors and the Securities Investors Association (Singapore) can work on a guidance mechanism for executive and board remuneration.

In the United States, it will become mandatory for companies to publish pay ratios between top executives and employees from next January. This is to improve corporate transparency on remuneration, as well as to serve as a check-and-balance mechanism.

Shareholder activism on executive pay has been rising in shareholder meetings in the major financial centres; Singapore will be no different.

Company directors must look seriously at these issues before it is too late.

S. Kumar

A version of this article appeared in the print edition of The Straits Times on April 23, 2016, with the headline 'Companies should look into scope of executive pay'. Print Edition | Subscribe