Current State of Remuneration Disclosures in light of the Corporate Governance Code Review

By Nishant Mahajan, Head of Executive Remuneration & Rewards Consulting – Mercer Singapore

As you may know, the Corporate Governance Council had recently elicited industry feedback regarding proposed enhancements to the Code of Corporate Governance.

Specifically with regards to remuneration disclosures, Guideline 9.2 of the Code recommends detailed disclosure, on a named basis, of the amounts and structure of individual director and CEO remuneration. In addition, Guideline 9.3 of the Code recommends similar disclosure of at least the remuneration of the top five key management personnel, in bands of S$250,000, as well as the aggregated total remuneration paid to these five key management personnel. 

Multiple studies including most recently the Board of Directors Survey of 2017 by the Singapore Institute of Directors and SGX found less than half of the respondent companies complied with Guideline 9.2. Worse still, 95 per cent of those that did not comply indicated that they have no intention of doing so within the next two years. 

Justifications by respondents for non-disclosures were "confidentiality of remuneration", to "prevent poaching", and to "prevent internal comparison and maintain morale". 

These concerns however cannot be substantiated with any credible data from the more mature markets in the West where more stringent disclosure norms do exist. In view of the foregoing, it can be concluded that the current state of compliance with the guidelines is poor.

While we welcome the proposed changes to remuneration disclosures, including disclosing a link between remuneration and value creation (in addition to performance) and disclosure of details of remuneration to employees who are substantial shareholders or their immediate family members, at Mercer we believe that more needs to be done to drive compliance. 

If we are serious about improving disclosure quality, our view is that at the very least, both Guidelines 9.1 and 9.2 should be made a listing requirement (compulsory) as opposed to a ‘comply or explain’ guidance as it currently stands. 

We examine the need for this stronger enforcement here with some supporting arguments::

  1. Without remuneration disclosures it is near impossible for investors and broader stakeholders to understand whether their CEO’s are being paid competitively or not.
  2. It would not be possible for them to understand whether the link between company performance and shareholder value with CEO compensation exists, is strong or weak (for it will be very difficult to hold CEOs accountable). There is no objective way of analysing whether or not CEO remunerations is justifiable in terms of linkage with performance.
  3. It is difficult to understand whether or not current remuneration structures are ‘effective’ or not. Unless data around pay quantum and structures is readily available for analyses, the most companies can do is copy practices from other markets where disclosures are stronger, or continue with historic approaches or change based on word-of-mouth, without any objective method to determine whether that money being spent on executives is in fact driving the right behaviours and outcomes for the investors.
  4. Variations and cross practice learning is limited again to word of mouth or anecdotal and patchy data. In most mature markets, new practices are often tried in the broader group of companies (smaller companies can be at the forefront as there is lesser scrutiny). Without the ability to get a better understanding of current market practices, analysing what works and what doesn’t, improvements in remuneration structures and their effectiveness are unlikely to be achieved in a meaningful way.
  5. Last but not least, as Singapore companies look for growth through more foreign institutional investments, global governance standards compliance on disclosures would come as part of that deal. In order to support (and accelerate) that growth and attract foreign investment, making disclosures (pay and otherwise) more streamlined and consistent across the board, will aid in that process and could potentially hinder investments if not adequately addressed. 

At Mercer, we believe that remuneration disclosures are pivotal to driving more robust governance practices for companies in Singapore, and drive meaningful improvements that are based on evidence not just opinion. We have been doing a lot of research recently on the linkages between executive remuneration and shareholder value creation to establish not just the strength of that relationship but also help identify the characteristics that drive it. Please get in touch to find out more.

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