Long-term incentive schemes are generally encouraged for executive directors and key management personnel. The RC should review whether executive directors and key management personnel should be eligible for benefits under long-term incentive schemes. The costs and benefits of long-term incentive schemes should be carefully evaluated. In normal circumstances, offers of shares or grants of options or other forms of deferred remuneration should vest over a period of time. The use of vesting schedules, whereby only a portion of the benefits can be exercised each year, is also strongly encouraged. Executive directors and key management personnel should be encouraged to hold their shares beyond the vesting period, subject to the need to finance any cost of acquiring the shares and associated tax liability.
 
A. Explanation

This Guideline describes the use of Long-Term Incentive schemes (LTIs) for Executive Directors (EDs) and Key Management Personnel (KMP).

The Guideline encourages the use of LTIs for EDs and KMP because the long-term success of the company is of critical importance, and is the collective responsibility of the Board, working with the Management (see Principle 1).  

Several specific guidelines are provided with respect to LTIs:

  • The RC should determine whether EDs and KMP as a group should be eligible for LTIs. In general, they should be.
  • LTIs should take into account costs and benefits. While they ensure long-term focus, there is a cost to them, and these costs are only realised in the future (although accounting standards may require accounting for the costs in the year of the award). Balancing costs and benefits is as important for LTIs as other remuneration schemes.
  • Share grants and options should be vested over time. A vesting schedule, typically three to five years, is common and ensures that the executive is retained for the long-term and, depending upon the scheme, that performance is sustained.
  • Employees should be encouraged, or even required, to hold onto their shares after vesting, subject to provisions for financing costs and any tax liabilities. This ensures that employees have a vested interest in the company beyond the vesting period.

 

B. SGX Disclosure Guide
  • Nil.

 

C. Related Rules and Regulations

 

D. CG Guides
  • RC Guide 4.3: Executive Remuneration Components [Executive Remuneration].
  • RC Guide 4.5: Performance Measures [Executive Remuneration].
  • RC Guide 4.7: Remuneration and Risk Alignment [Executive Remuneration].
  • RC Guide 5.1 Introduction [Equity-Based Remuneration] [Equity-Based Remuneration].
  • RC Guide 5.4: Plan Design [Equity-Based Remuneration].
  • RC Guide Appendix 5B-1: Selecting the Relevant Long-Term Incentive Instrument [Equity-Based Remuneration].
  • RC Guide Appendix 5B-2: Finding the Right Performance Measures [Equity-Based Remuneration].
  • RC Guide Appendix 5C: Types of Equity Plans [Equity-Based Remuneration].
  • RC Guide Appendix 5D: Checklist of Key Decisions in Designing a Long-Term Incentive Plan [Equity-Based Remuneration].

 

E. Related Articles

 

eGuide to CG Code
Overview
Board Matters
Principle 1
Guideline 1.1
Guideline 1.2
Guideline 1.3
Guideline 1.4
Guideline 1.5
Guideline 1.6
Guideline 1.7
Principle 2
Guideline 2.1
Guideline 2.2
Guideline 2.3
Guideline 2.4
Guideline 2.5
Guideline 2.6
Guideline 2.7
Guideline 2.8
Principle 3
Guideline 3.1
Guideline 3.2
Guideline 3.3
Guideline 3.4
Principle 4
Guideline 4.1
Guideline 4.2
Guideline 4.3
Guideline 4.4
Guideline 4.5
Guideline 4.6
Guideline 4.7
Principle 5
Guideline 5.1
Guideline 5.2
Guideline 5.3
Principle 6
Guideline 6.1
Guideline 6.2
Guideline 6.3
Guideline 6.4
Guideline 6.5
Remuneration Matters
Principle 7
Guideline 7.1
Guideline 7.2
Guideline 7.3
Guideline 7.4
Principle 8
Guideline 8.1
Guideline 8.2
Guideline 8.3
Guideline 8.4
Principle 9
Guideline 9.1
Guideline 9.2
Guideline 9.3
Guideline 9.4
Guideline 9.5
Guideline 9.6
Accountability and Audit
Principle 10
Guideline 10.1
Guideline 10.2
Guideline 10.3
Principle 11
Guideline 11.1
Guideline 11.2
Guideline 11.3
Guideline 11.4
Principle 12
Guideline 12.1
Guideline 12.2
Guideline 12.3
Guideline 12.4
Guideline 12.5
Guideline 12.6
Guideline 12.7
Guideline 12.8
Guideline 12.9
Principle 13
Guideline 13.1
Guideline 13.2
Guideline 13.3
Guideline 13.4
Guideline 13.5
Shareholder Rights and Responsibilities
Principle 14
Guideline 14.1
Guideline 14.2
Guideline 14.3
Principle 15
Guideline 15.1
Guideline 15.2
Guideline 15.3
Guideline 15.4
Guideline 15.5
Principle 16
Guideline 16.1
Guideline 16.2
Guideline 16.3
Guideline 16.4
Guideline 16.5
eGuide Glossary
Disclosure of CG arrangements
The Role of Shareholders

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