|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.|
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
C. Related Rules and Regulations
- SGX Listing Manual - Part VIII, Chapter 8: Share Option Schemes or Share Schemes.
- SGX MR 704(29) and CR 704(32): Employee Share Option or Share Scheme.
- SGX MR 1207(16) and CR 1204(16): Annual Reports (Employee Share Option Scheme).
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
- “Top executive pay – is alignment reducing?” by Jon Robinson. (79KB)
- “Are you providing the right pay package for your C-Suites?” by Tan Yong Fei. (582KB)
- “Executive compensation in Asia – best practices in a dynamic environment” by Fermin Diez, Hans Kothuis, Jianwen Chua. (1.2MB)
- “Rethinking long-term incentives schemes: beyond stock options” by Towers Watson. (241KB)