|The remuneration of non-executive directors should be appropriate to the level of contribution, taking into account factors such as effort and time spent, and responsibilities of the directors. Non-executive directors should not be over-compensated to the extent that their independence may be compromised. The RC should also consider implementing schemes to encourage non-executive directors to hold shares in the company so as to better align the interests of such non-executive directors with the interests of shareholders.|
EDs are part of management, and their remuneration should reflect what is needed to attract, retain and motivate talent for the day-to-day running of the company. NEDs, on the other hand, provide a pure governance function. The remuneration frameworks for NEDs and EDs are thus different.
NEDs are remunerated according to the level of their contributions. How this should be measured is the question. The Guideline suggests taking into account the time spent and the efforts exerted by the NEDs as well as their responsibilities.
The Guideline warns against overcompensating NEDs to the extent that their independence and objectivity are compromised. This can happen when an NED’s compensation is of financial significance relative to his other income sources or assets.
The Guideline also takes a position on the holding of shares by NEDs. It suggests that this is to be encouraged as it would align the interests of NEDs with the interests of shareholders.
There is a countervailing view that an NED’s interests should be above that of being an individual shareholder, and that owning shares could compromise his objectivity as he may be overly concerned with share price movements.
The SID’s view on this issue, most of which are set out in the Singapore Institute of Director’s Statement of Good Practice (SGP) 10, are:
- NEDs are to be encouraged to hold some shares to align their interests with those of shareholders’. Such shareholding, however, should not be so significant as to compromise their objectivity and independence.
- Where shares are provided as part of an NED’s remuneration, they should be provided as an alternative to paying fees in cash, or as an additional grant to recognise particular achievements. One should exercise caution against the use of option plans, performance share plans, or other performance-related arrangements as these could compromise independence or judgement.
- Directors should be encouraged to hold shares for the long term, and they should not be trading the shares based on short-term considerations.
B. SGX Disclosure Guide
C. Related Rules and Regulations
- Section 169(1) of the Companies Act: Provision and Improvement of Director’s Emoluments.
- SGX MR Appendix 2.2(9)(c) and CR Appendix 4C(9)(c): Directors.
D. CG Guides
- RC Guide 3.1: Introduction [Non-Executive Director Fees].
- RC Guide 3.2: Non-Executive Director Fee Philosophy [Non-Executive Director Fees].
- RC Guide 3.4: Use of Equity [Non-Executive Director Fees].
- RC Guide 3.5: Determining Non-Executive Director Fees [Non-Executive Director Fees].
- RC Guide Appendix 3B-1: Non-Executive Director Fee Peer Group Determination for Companies of Small Market Capitalisation [Non-Executive Director Fees].
- RC Guide Appendix 3B-2: Non-Executive Director Fee Peer Group Determination for Companies of Large Market Capitalisation [Non-Executive Director Fees].
- RC Guide Appendix 3B-3: Non-Executive Director Fee Benchmarking and Basis for Comparison [Non-Executive Director Fees].
- RC Guide Appendix 3B-3: Non-Executive Director Fee Determination for a Non-Listed Company [Non-Executive Director Fees].
- RC Guide Appendix 3C: Sample Non-Executive Director Fee Framework for Boards of Subsidiary Companies [Non-Executive Director Fees].
- RC Guide Appendix 3D: Non-Executive Director Role Fees [Non-Executive Director Fees].
E. Related Articles
- “Should Non-Executive Directors own shares?” by Annabelle Yip. (457KB)
- “Compensating Independent Non-Executive Directors”. by SID (142KB)
- “Non-Executive Directors’ fee: the state of the market” by Jon Robinson. (117KB)
- “Managing the remuneration system” by Na Boon Chong. (85KB)
- “Non-Executive Directors’ fees – is now the time for a significant increase?” by Jon Robinson. (141KB)
- “Non-Executive Directors’ fees: the state of play” by Jon Robinson. (88KB)
- “Non-Executive Directors fees” by Hay Group. (243KB)