A. Explanation

This Provision describes the remuneration of EDs and KMP, and the linkage to performance.

The essence of this Provision is that executive pay should be largely tied to performance – both corporate and individual.

Practice Guidance 7 suggests that the company’s remuneration framework should be tailored to the specific role and circumstances of each KMP. The remuneration level and mix should recognise the responsibilities, performance and potential of these individuals.

In particular, performance-related remuneration should have the following features:

• It should account for the risk policies of the company, be symmetric with risk outcomes, and be sensitive to the time horizon of risks.
• There should be appropriate, quantifiable and meaningful measures that incentivise the right behaviour and values that the company supports.
• For individuals in control functions (e.g. Chief Financial Officer, Chief Risk Officer, head of the internal audit function), the performance measures should principally be based on achieving the objectives of their functions.
• Long-term incentive schemes are encouraged for EDs and KMP, but their costs and benefits should be carefully evaluated.
• In general, shares, grants of options or other forms of deferred remuneration should vest over a period of time. EDs and KMP should be encouraged to hold their shares beyond the vesting period, subject to the need to finance any cost of acquiring the shares and associated tax liability.
• Companies should consider using contractual provisions that allow them to reclaim incentive components of remuneration in exceptional circumstances, including, for example, misstatement of financial results, misconduct resulting in financial loss to the company, or conviction for related criminal offences.

B. Practice Guidance

• Practice Guidance 7: Level and Mix of Remuneration.

C. Related Rules and Regulations

• Nil.

D. CG Guides

• RC Guide 3.5: Determining Non-Executive Director Fees [Non-Executive Fees].
• RC Guide 4.2: Executive Remuneration Philosophy [Executive Remuneration].
• RC Guide 4.3: Executive Remuneration Components [Executive Remuneration].
• RC Guide 4.3: Executive Remuneration Levels [Executive Remuneration].
• RC Guide 4.5: Performance Measures [Executive Remuneration].
• RC Guide 4.6: Performance Targets [Executive Remuneration].
• RC Guide 4.7: Remuneration and Risk Alignment [Executive Remuneration].
• RC Guide Appendix 4C: Sample Remuneration Framework [Executive Remuneration].
• RC Guide Appendix 4G: Common Financial Performance Measures [Executive Remuneration].
• RC Guide Appendix 4H: Considerations in Adopting Profit Measures as Performance Measures [Executive Remuneration].
• RC Guide Appendix 4I: Framework for Setting Performance Goals [Executive Remuneration].
• RC Guide Appendix 4J: Mapping Remuneration and Risks [Executive Remuneration].
• RC Guide 5.4: Plan Design [Equity-Based Remuneration].
• Board Guide Appendix 5C: Duty to Act in Company’s Best Interests [Director Duties].

E. Related Articles

• “Pay for results: the changing roles of Boards and company executives in pay decisions” by Fermin Diez and Lee Voon Keong. (130KB)
• “Pay for results: aligning executive compensation with business performance” by Fermin Diez. (108KB)
• “Managing the remuneration system” by Na Boon Chong. (85KB)
• “Winds of change in executive compensation as propelled by Corporate Governance” by Brian Dunn and Na Boon Chong. (102KB)
• “Executive compensation in Asia – best practices in a dynamic environment” by Fermin Diez, Hans Kothuis, Jianwen Chua. (1.2MB)
• “The CEO – reconciling compensation, values and value creation” by Boon Leong Lim and Lucy Liu. (325KB)
• “Has pay-for-performance differentiation worked?” by Shai Ganu. (133KB)