A company’s annual remuneration report should form part of, or be annexed to, the company’s annual report. It should be the main means through which the company reports to shareholders on all forms of remuneration and other payments and benefits, for directors and key management personnel (KMP), from itself and its subsidiaries.
Remuneration disclosures for individual directors and the Chief Executive Officer (CEO) should specify the names, amounts and breakdown of remuneration.
Remuneration disclosures for at least the top five KMP (who are not directors or the CEO) should specify the names, amounts and breakdown of remuneration in bands no wider than S$250,000 (refer to illustrative examples below).
A breakdown (in percentage terms) of the remuneration earned by each director, the CEO and each of at least the top five KMP (who are not directors or the CEO) should include base/fixed salary, variable or performance-related income/bonuses, benefits in kind, stock options granted, share-based incentives and awards, and other long-term incentives. The disclosures on employee share schemes should cover the important terms such as the potential size of grants, methodology of valuing stock options, exercise price of options that were granted as well as outstanding, whether the exercise price was at the market or otherwise on the date of grant, market price on the date of exercise, the vesting schedule, and the justifications for the terms adopted.
In addition to the disclosure in aggregate of the total remuneration paid to at least the top five KMP (who are not directors or the CEO), the aggregate amount of any termination, retirement and post-employment benefits that may be granted to directors, the CEO and at least the top five KMP (who are not directors or the CEO) should be separately disclosed.
For administrative convenience, the company may round off the disclosed figures to the nearest thousand dollars. The disclosure of remuneration may be in bands no wider than S$250,000 for at least top five KMPs; and no wider than S$100,000 for employees who are substantial shareholders, or are immediate family members of a director, the CEO or a substantial shareholder.
Illustrative Examples of Banding:
A company has five KMP: V, W, X, Y and Z. The KMPs’ remuneration are as follows:
V is paid S$300,000; W is paid SS300,000; X is paid S$540,000; Y is paid S$650,000; and Z is paid S$1,005,000.
|Applicable bands||Top 5 KMP|
|≥S$1,000,001 – S$1,250,000||Z|
|≥S$500,001 – S$750,000||X, Y|
|≥S$250,000 – S$500,000||V, W|
Disclosure of Relationships between Remuneration, Performance and Value Creation
To facilitate better understanding of the relationships between remuneration, performance and value creation, companies should adopt and disclose the following information:
- the company’s definition of value creation for its stakeholders (including shareholders and other material stakeholders) and how it is measured;
- the process for formulating the remuneration policies, including the governance of the process;
- the way that remuneration is designed to drive corporate performance, including a description of why the indicators chosen are relevant to the company in the context of their strategy, or their desire to create value and generate shareholder returns;
- the way that remuneration is used to manage risk (e.g. remuneration that does not generate excessive risk taking and envisages reductions to remuneration for exceeding agreed risk limits);
- the way that performance is measured, including the types of financial and non-financial metrics adopted (e.g. Earnings Per Share (EPS), Total Shareholder Returns (TSR), Return On Equity (ROE), customer metrics, operational metrics, safety metrics);
- the way that personal performance is assessed and taken into account (e.g. the way that the officers create an appropriate work culture in the company, and the contributions of such officers to succession planning, and engagement with the regulatory authorities in the relevant industries in which the company operates in);
- the breakdown of those metrics as part of variable remuneration (e.g. 80% financial metrics split across 33% EPS, 33% TSR and 33% ROE; 20% non-financial metrics split across 40% Customer Satisfaction, 40% Safety Performance and 20% Employee Engagement);
- the metrics used, and why the metrics are appropriate (e.g. EPS growth of 6% compound, TSR of top quartile, ROE of 8%, zero Lost Time Injuries, 90% On Time Performance), including whether relative performance is measured against peers;
- the periods over which performance is assessed (e.g. three year performance period), including justification for why a shorter-term performance period is used for a long-term incentive plan, in instances where this is the case;
- payouts that can be achieved for hitting or exceeding these targets (e.g. 100% payout for median performance, 150% payout for top quartile, 50% payout for 90-percentile performance);
- the form of the payout, (e.g. whether in the form of shares or cash), along with holding periods, if any, for shares;
- the breakdown in company and individual performance outcomes and actual remuneration paid, including explanations where company and/or individual performance outcomes were not achieved yet remuneration was not adjusted in line with the remuneration policy;
- where discretion can be exercised by the Board and/or Remuneration Committee in determining the relationship between remuneration, performance and value creation;
- the existence of any gateways (or negative indicators) to pay-outs (e.g. whether, if the company received a highly critical regulatory report, long term incentives would nevertheless be fully payable because of achievement of profitability metrics); and
- the existence and structure of any clawbacks for malfeasance.