|A significant and appropriate proportion of executive directors’ and key management personnel's remuneration should be structured so as to link rewards to corporate and individual performance. Such performance-related remuneration should be aligned with the interests of shareholders and promote the long-term success of the company. It should take account of the risk policies of the company, be symmetric with risk outcomes and be sensitive to the time horizon of risks. There should be appropriate and meaningful measures for the purpose of assessing executive directors' and key management personnel's performance.|
Remuneration is an important factor in attracting, retaining and motivating management, in particular the EDs and KMP. However, what should be the basis for the remuneration? This Guideline suggests two key elements: performance and risk.
On performance, the Guideline advises:
- A significant proportion of ED and KMP remuneration should be linked to a combination of both corporate and individual performance. Linking it to corporate performance recognises that it is the management team as a whole that most influences the corporate results. However, the individual performance link recognises the performance of the individual within the team.
- Performance measures should be related to the interests of shareholders. This underlines the fundamental importance of shareholders and the need to ensure that the Board and management work towards their interests.
- Performance measures should be related to the long-term interests of the company. Short-term measures such as share price movements and current year profitability do not adequately motivate management to make decisions that are designed to yield long-term benefits.
- Performance should be measurable, appropriate and meaningful so that they incentivise the right behaviour and values that the company supports.
On risks, the Guideline advises:
- Remuneration should take into account the company’s risk policy. Remuneration structures and targets can steer management towards specific actions such as inorganic growth through acquisitions or investments in products with short- or long-term returns. Thus, the Board needs to be clear that performance measures are in line with its risk policy and appetite.
- Remuneration should be symmetrical with risk outcomes. This Guideline suggests that remuneration should reflect the results of risks taken.
- Remuneration should be sensitive to the time-horizon of risks. This Guideline notes that risk outcomes come into play over time, so rewards should recognise that. The RC should be cautious about rewarding short-term results that are achieved at the expense of carrying risks into the future.
B. SGX Disclosure Guide
C. Related Rules and Regulations
D. CG Guides
- RC Guide 3.5: Determining Non-Executive Director Fees [Non-Executive Fees].
- RC Guide 4.2: Executive Remuneration Philosophy [Executive Remuneration].
- RC Guide 4.3: Executive Remuneration Components [Executive Remuneration].
- RC Guide 4.3: Executive Remuneration Levels [Executive Remuneration].
- RC Guide 4.5: Performance Measures [Executive Remuneration].
- RC Guide 4.6: Performance Targets [Executive Remuneration].
- RC Guide 4.7: Remuneration and Risk Alignment [Executive Remuneration].
- RC Guide Appendix 4C: Sample Remuneration Framework [Executive Remuneration].
- RC Guide Appendix 4G: Common Financial Performance Measures [Executive Remuneration].
- RC Guide Appendix 4H: Considerations in Adopting Profit Measures as Performance Measures [Executive Remuneration].
- RC Guide Appendix 4I: Framework for Setting Performance Goals [Executive Remuneration].
- RC Guide Appendix 4J: Mapping Remuneration and Risks [Executive Remuneration].
- RC Guide 5.4: Plan Design [Equity-Based Remuneration].
- Board Guide Appendix 5C: Duty to Act in Company’s Best Interests [Director Duties].
E. Related Articles
- “Pay for results: the changing roles of Boards and company executives in pay decisions” by Fermin Diez and Lee Voon Keong. (130KB)
- “Pay for results: aligning executive compensation with business performance” by Fermin Diez. (108KB)
- “Managing the remuneration system” by Na Boon Chong. (85KB)
- “Winds of change in executive compensation as propelled by Corporate Governance” by Brian Dunn and Na Boon Chong. (102KB)
- “Executive compensation in Asia – best practices in a dynamic environment” by Fermin Diez, Hans Kothuis, Jianwen Chua. (1.2MB)
- “Addressing remuneration matters as set forth in the new Code of Corporate Governance” by Na Boon Chong. (89KB)
- “The CEO – reconciling compensation, values and value creation” by Boon Leong Lim and Lucy Liu. (325KB)