Out of the 30 highest paid CEOs of listed Singapore companies, only half have long-term incentives worked into their 2013 pay


More firms align CEO pay with shareholder interest

But compliance remains a slow process, according to Freshwater Advisers pay review



They may have to be dragged into the light, but more Singapore companies are complying with the idea of aligning their interest to those of their shareholders – PHOTO: ST

[SINGAPORE] They may have to be dragged into the light, but more Singapore companies are complying with the idea of aligning their interest to those of their shareholders.

Still this remains a slow process – out of the 30 highest paid CEOs, only half have long-term incentives worked into their 2013 pay, according to a pay review by Freshwater Advisers.

Temasek-linked companies and the OCBC group continued to lead in offering long-term incentives. In contrast, family-controlled companies mainly rewarded themselves with cash bonuses.

According to the 2012 Code of Corporate Governance, performance-related remuneration should be aligned with the interests of shareholders and promote the long-term success of the company. It also said that firms must disclose the exact amount paid to executive directors, or explain why they did not.

UOB finally did so last year; it used to report pay in $250,000 bands.

Super Group’s Teo Kee Bock made it into the list this year, at 16th; in 2012 all shareholders knew was that he earned more than $500,000.

The table threw up interesting nuggets. A minnow such as United Envirotech, which posted profit before tax (PBT) of $39 million, paid chief executive Lin Yucheng $5.76 million last year, a 821 per cent jump in pay.

Mr Lin’s hefty reward, which catapulted him to 13th on the list, came from a grant of 12 million share options valued by Freshwater Advisers at $4.88 million.

Last year, American private equity giant Kohlberg Kravis Roberts (KKR), paid US$40 million to raise its stake in United Envirotech, a water treatment and recycling solution provider in China. KKR made its first investment, a US$113.8 million capital injection via convertible bonds, in 2011.

KKR is the largest shareholder, with more than 16 per cent, and has three directors on board.

Jon Robinson, managing director of Freshwater Advisers, said that the single grant share options should be seen as a long-term incentive.

He believes that the process in which KKR determined the incentive for Mr Lin was a reasonable one and that while KKR was acting in its own interest, the consequence is that all shareholders should benefit.

“I have no concern . . . KKR knows how to create value for shareholders, as they are one,” said Mr Robinson.

Making it into the top 10 were chiefs from three smallish companies in terms of profit, due to their outsized cash bonuses.

Fragrance Group’s Koh Wee Meng and Aspial Corp’s Koh Wee Seng got over $6 million each while Ho Bee’s Chua Thian Poh received $5.5 million.

Their cash bonuses were several multiples of their salaries; in the case of Aspial’s Mr Koh, it was 26 times. Aspial’s revenue rose 14 per cent and its PBT surged 28 per cent from the last financial year.

Mr Robinson noted that when Aspial listed in 1999, there was a profit-sharing arrangement set out in the service agreements and disclosed in the prospectus. The profit share formula gave a maximum of 3.5 per cent of profits to Mr Koh.

The amount paid in 2013 was some 8 per cent of profits. This percentage is almost double the next highest in the top 30 list, he said.

“That profit-share formula has ratcheted up over the years, that is not good, you’ve got a controlling shareholder . . . it appears to be excessive,” he said.

Getting into the list was Oxley Holdings’ Ching Chiat Kwong, whose pay jumped 3.5 times to $5.13 million, largely from a cash bonus of $4.77 million. Oxley’s PBT more than quadrupled to $123 million.

While there has been improvement in pay disclosure, corporate governance standards between Singapore and other comparable jurisdictions is widening, said Mr Robinson.

“Singapore is falling considerably in the global table on this, not in terms of its principles but in practice – where the guidelines are being ignored and the regulator is not taking any positive step to ensure compliance with the Code,” he said.

“Governance is generally stronger in London and Australia; the governance environment in Hong Kong seems weaker in principle but stronger in practice,” he said.

There were 29 companies which did not follow the Code on pay disclosure.

Companies which do not disclose have to explain and the reason often cited is “competitive reasons”.

“When that person owns 60 per cent of that company, that person is not going to walk away,” said Mr Robinson.

Freshwater looked at companies with a market capitalisation of more than $100 million – and covered 297.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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