S’pore firms must get over reluctance to disclose board, CEO pay to raise governance standards
Listed companies here must overcome a reluctance to disclose the remuneration of chief executives and directors.
By KANG WAN CHERN
The Straits Times, 23 October 2023
SINGAPORE – Listed companies in Singapore must overcome a culture of reluctance to disclose the pay packages of their top executives, as this will help them build accountability with shareholders and elevate local corporate governance standards to attract more investors.
Experts said companies should, by now, have a strategy to manage any fallout from disclosing the exact remuneration paid to their directors and chief executives ahead of a Singapore Exchange (SGX) listing rule requiring all public companies to do so by 2024.
The disclosure must include base or fixed salary, variable or performance-related income or bonuses, benefits in kind, stock options, incentives and awards, as well as other long-term incentives.
This comes on the back of data released in a Singapore Institute of Directors report last Wednesday showing that around two-thirds of companies polled still do not disclose exactly how much their CEOs and directors earn.
Published once every two years, the Singapore Directorship Report 2023 collected information from 650 companies, 42 real estate investment trusts and five business trusts listed on SGX.
The report reveals that disclosure standards have diminished over the past two years, even as CEO pay has increased.
Only 37.5 per cent of the companies polled provided detailed remuneration disclosures, unchanged from 2021, while 48.3 per cent gave the information in bands compared with 54 per cent in 2021.
The data also shows that 14.2 per cent did not make any disclosures, almost double the proportion of companies in 2021.
In contrast, 47.7 per cent of CEOs who are also directors of their company were paid above $500,000 in 2023, up from 43.3 per cent in 2021.
The proportion of CEO-directors who received between $500,000 and $1 million, and those paid more than a million, are also higher compared with 2021.
“There continues to be a reluctance among firms to fully disclose CEO and directors’ remuneration. In Asia, the culture is such that we seldom talk about how much we are paid. It is a big area we need to overcome,” said accounting professor Ho Yew Kee at the Singapore Institute of Technology.
He added that adequate and timely disclosure ensures that remuneration practices are fair, competitive and in line with a firm’s performance and industry standards.
“Yet, full disclosure is still a problem in Singapore,” he said.
Associate Professor Victor Yeo from Nanyang Business School noted that some reasons for non-disclosure are linked to concerns about the poaching of talent by competitors who are able to pay more.
“This could also lead to internal demand for higher salaries if existing pay packages are not on a par with the industry, so firms would need to start paying more every year as salaries rise.”
Professor Lawrence Loh, director of the Centre for Governance and Sustainability at the National University of Singapore (NUS) Business School, noted that some are also concerned about personal security should their full pay cheques be revealed.
This is especially the case with CEOs, who are rewarded much more than the rest of the board and management.
He said companies have lost some top talent who opted to leave or refrain from working in public companies to avoid full disclosure.
But the experts agreed that the benefits of full remuneration disclosure far outweigh the cons.
Accounting professor Mak Yuen Teen from NUS Business School said companies that fail to be transparent could give investors a negative view of their board and management.
“It sends a signal that the company does not want to be transparent about pay equity and has something to hide. If it is rewarding its directors fairly, there should be no issue with fully disclosing this information.”
He added: “If shareholders have appointed you to sit on the board of a public company, they have a right to know in detail how much you are paid.”
The issue is even more important now that companies are adopting environmental, social and governance (ESG) frameworks and under pressure to be more inclusive.
“How you reward people at different levels should be disclosed,” Prof Mak said.
He added that remuneration disclosure requirements are common in other markets like Hong Kong and Japan, and have also been implemented in Malaysia without much resistance.
Prof Yeo agreed: “This cultural shift should not be an issue. Companies linked to (Singapore’s investment company) Temasek have been disclosing the remuneration of their directors and CEOs for a long time, so there are precedents to follow.”
Still, Prof Ho noted that frameworks could be established to help companies manage the implications of full disclosure.
“When a firm discloses exact compensation, its board must be able to defend why it is awarding that level of compensation in relation to the performance of the firm versus its competitors.”
The company must have its performance evaluation metrics ready and implement a strategy to manage any upheaval should people see large discrepancies in the size of compensation.
Prof Loh said companies that score well on an index for assessing corporate governance practices of Singapore-listed companies, including transparency and disclosure, are rewarded with greater confidence from shareholders as well as more investors.
Singtel topped 2023’s Singapore Governance and Transparency Index, followed by DBS Group and Sats tied in second place. Other high scorers include UOB, City Developments and SGX.
In this index compiled by the Centre for Governance and Sustainability, two mid-cap companies, precision engineer Micro-Mechanics and canned food producer Del Monte Pacific, also scored well.
Prof Loh said: “With the full disclosure rule taking effect next year, there should be much less non-compliance. So, we should see an improvement in transparency and accountability among public companies.”
Singapore Exchange Regulation CEO Tan Boon Gin said: “CEO remuneration is the quantitative manifestation of whether the company’s compensation philosophy is working as professed. The disclosure of remuneration is mandatory. Non-disclosure would therefore be a breach of the rule.”