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

PUBLISHED JUNE 20, 2014

More firms align CEO pay with shareholder interest

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

SIOW LI SEN

LISEN@SPH.COM.SG   @SiowLiSenBT

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.

 

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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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