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Korn Ferry Report: Pay Flat, Long-Term Incentives Utilization Low for Singapore CEOs

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  • The median total pay for Chief Executive Officers (CEOs) at Singapore-listed companies has remained constant at S$625,000 per annum in Financial Year (FY) 2016.
  • Utilization of long-term incentives remains low at 11 percent at Singapore-listed companies.
  • Pay-for-performance alignment between a CEO’s pay and the company’s profitability continues to be an issue.
  • 21 percent of Singapore-listed companies in FY 2016 paid bonuses to their CEO despite incurring a loss during the FY, while 32 percent paid higher bonuses to their CEOs despite lower profitability.

SINGAPORE, Wednesday, September 13, 2017 – A report released today by Korn Ferry Hay Group, a division of Korn Ferry (NYSE: KFY) said that median total pay for Chief Executive Officers (CEOs) of Singapore-listed companies remained flat at S$625,000 per annum in Financial Year (FY) 2016, similar to the previous FY.

Based on data from the latest annual company reports collected as of December 31, 2016, the annual study Singapore Top Executive Remuneration 2017 analyzed remuneration data of CEOs from 541 listed companies in the Singapore Exchange that filed their annual reports between May 1, 2016 and April 30, 2017 across nine major industry sectors: Commerce, Construction, Finance, Hotels/restaurants, Manufacturing, Multi-industry, Properties, Transportation/storage/communication and Others.

By comparison, Korn Ferry Hay Group’s study of CEO compensation at the 300 largest United States (U.S.)-listed companies that filed their proxy statements during the year ending April 30, 2017 (the “KF 300”) found that total direct compensation (the sum of salary, bonus, and grant date fair value of long-term incentives) increased by 4.2 percent over the prior year to a total of US$12,464,251. However, this increase was almost entirely due to a 4.4 percent rise in the grant date fair value of long-term incentives, which maintained the heaviest emphasis within CEO pay at KF 300 companies; base salaries at such firms only increased 0.8 per cent, while annual incentives were flat (0.0 percent increase).

CEO Pay by Company Size

CEO compensation at Singapore companies was generally greater at large-sized companies than at medium-sized and small-sized companies (definition of size is based on market capitalization as defined in the next paragraph). A close look at Figure 1 reveals that CEOs at large-sized companies were paid a median total remuneration of approximately S$3.41 million per annum in FY2016, which is 0.4 percent higher than the previous FY, while those in medium-sized companies were paid a median total remuneration of approximately S$1.25 million, 18 percent lower than the last FY. At small-sized companies, the median total remuneration level for CEOs was approximately S$599,640, a 4 percent decrease from the previous FY. Median total remuneration level for CEOs of Singapore Exchange’s Catalist companies remained flat at S$375,000.

Large-sized Singapore companies have a market capitalization that exceeds S$3 billion while the market capitalization for medium-sized companies ranges from S$500 million to S$3 billion. In the case of small-sized companies, the market capitalization is lower than S$500 million.

 

Figure 1: Year-on-year comparison of CEO median total remuneration by company size

CEO Pay by Industry/Sector

A close examination of pay practices by nine key industries revealed that the Property sector had the highest median CEO compensation (S$1.5 million per annum), followed by the Multi-Industry sector (S$1.33 million) and the Finance sector (S$1.22 million). See Table 1. 

Industry Sector Total Remuneration ('000 SGD) Median
Property 1,500
Multi-Industry 1,333
Finance 1,223
Construction 875
Others* 625
Commerce 625
Hotels/Restaurants 587
Manufacturing 553
Transport/Storage/Communications     500

 

 *Agriculture, Mining, Loans/Debentures, Services Sector

Table 1: CEO remuneration by industry sector in FY 2016

Low Utilization of Long-Term Incentive Plans

According to the study, only 11 percent of the 541 companies rewarded their top executives with long-term incentive (LTI) plans in FY 2016, with large-sized companies taking the lead in the utilization of LTI pay (68.8 percent), followed by medium-sized companies at 19 percent, small-sized companies at 5.2 percent and Catalist companies at 6.2 percent. See Table 2.

Company Size    No. of Companies    Utilization in FY 2016 Companies which utilized LTI    Utilization Rate
Large 32 22 68.8%
Medium 58 11 19.0%
Small 305 16 5.2%
Catalist 146 9 6.2%
All 541 58 10.7%

 

Table 3 (immediately below) indicates that LTIs do not constitute a significant portion of Total Compensation.

LTI/Total Comp (%)    % of companies
40% and above 10%
30% - 40% 19%
20% < 20% 24%
10% < 20% 14%
<10% 33%

 

Table 3: Long-Term Incentives as a percentage of CEO Total Comp

Typical market instruments of LTI includes Share Options, Performance Shares Plan and Restricted Shares Plan.

Typical Market LTI Instruments    Typical Market Usage
Share Options 42%
Performance Shares Plan 40%
Restricted Shares Plan 18%

 

Table 4: Typical Market LTI Instruments in Singapore

In contrast to the limited use of LTIs in Singapore (see Tables 2, 3 and 4 above), at KF 300 companies in FY 2016, LTIs were by far the largest component of CEOs’ pay, representing 66 percent of their total direct compensation. In fact, each of the main types of LTIs were awarded to CEOs at a majority of KF 300 companies in FY 2016; 86 percent of such U.S.-listed companies made performance-based grants in 2016, 64 percent made restricted stock or restricted stock unit grants, and 57 percent made stock option grants. Performance awards alone comprised 35 percent of such CEOs’ total direct compensation in FYI 2016 (up from 32 percent for FY 2015).

In comparison to the LTI mix of CEOs at Singapore firms (shown above in Table 4), KF 300 companies also employed a portfolio approach to LTI with nearly three-quarters of these companies utilizing a combination of two or three vehicles. In addition, performance-based awards represented most CEOs’ LTI awards at KF 300 companies – at such companies, performance awards increased to 54.7 percent of LTIs for FY 2016 from 51 percent the prior year. The remaining LTI mix typically consisted of stock options only, restricted stock only, or a balance of stock options and restricted stock.

Pay-for-Performance Practice in Singapore

The study also found that 31 percent of Singapore companies in FY 2016 did not pay bonuses to their CEOs, while 21 percent of companies in FY 2016 paid bonuses to their CEOs despite incurring a loss during the FY. In addition, 32 percent of the companies that paid bonuses had significantly higher CEO bonuses for FY 2016 (compared to FY 2015) for lower company profitability for FY 2016 (compared to the prior year), indicating a significant misalignment between company profitability and CEO pay.

Of the companies that paid out bonuses, 75 percent of companies paid bonuses that were less than 5 percent of net profit after tax (NPAT), 15 percent of companies paid bonuses that were between 5 to 10 percent of NPAT and 10 percent of companies paid bonuses that were more than 10 percent of NPAT; the highest bonus recorded was above 200 percent of NPAT.

At U.S. publicly-listed firms, particularly KF 300 companies, the input of (and the engagement by companies with) large shareholders, proxy advisory firms, and various stakeholders has resulted in a focus on “pay-for-performance,” as evidenced by the leading role of LTIs in CEO compensation and the dominance of performance awards in the LTI mix. U.S.-listed companies also have used the Compensation Disclosure and Analysis (“CD&A”) of their annual proxy statements as an opportunity to explain their compensation philosophy and the rationale for LTIs, which has contributed to their increased use of performance-based LTIs and high support from shareholders in their “say-on-pay” votes.

“There is heightened pressure from shareholders to demonstrate the linkage between CEOs pay and the performance of the company. Remuneration committees need to address the enhanced scrutiny from corporate governance activists, with added emphasis on pay-for-performance and ultimately sustainable performance in the long-term,” commented Mr. Kevin Goh, Senior Client Partner, Korn Ferry Hay Group.

“Compared to more mature economies, Singapore companies have a lower utilization of LTI in rewarding CEOs,” he continued. “Having an LTI plan is a way of delivering the message that top executives need to balance both the short- and long-term sustainability of the company. A well-designed remuneration structure with executive pay having some resemblance to what shareholders will get out of their investment should be able to motivate executives to take actions.”

Notes to Editors

Please note: this study should be credited to “Korn Ferry Hay Group,” and not “Hay” or “Hays,” which are separate and unrelated organisations.

About Singapore Top Executive Remuneration Report 2017:

The study focused on the primary elements of compensation for CEOs of 541 listed companies in the Singapore Exchange that filed their proxy statements in the period commencing May 1, 2016 and ending April 30, 2017, across nine major industry sectors which include Commerce, Construction, Finance, Hotels/restaurants, Manufacturing, Multi-industry, Properties, Transportation/storage/communication and Others. The report reviewed the pay practice, including the pay level and pay-for-performance, for CEOs. The analysis of the report is based on data from the latest annual company reports collected as of 31 December 2016.

About Korn Ferry

Korn Ferry is the preeminent global people and organizational advisory firm. We help leaders, organizations and societies succeed by releasing the full power and potential of people. Our more than 7,000 colleagues deliver services through Korn Ferry and our Hay Group and Futurestep divisions.

 

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