Good morning, and welcome to SGX. My thanks to GDI and Prof Mak for inviting me to join you today.
And thank you for tackling the thorny topic of remuneration.
Once upon a time, when we wanted to tell someone off, or signal to someone that he or she was being too much of a busybody, or being too nosey, we would ask, very pointedly, “Do you also want to know how much my father is earning?”
I haven’t heard that expression in a while, but I don’t believe that the topic has become any less sensitive.
For years, the Code of Corporate Governance recommended that companies disclose the exact remuneration of each individual director and the CEO.
But most companies still preferred to take advantage of the leeway offered by the rules, which allowed companies to disclose remuneration in bands.
In 2018, according to a study conducted by Prof Mak and Chew Yi Hong, and supported by SGX, only 30% of companies disclosed the exact remuneration of the CEO. Thirty percent. And only 27%, even less, disclosed the exact remuneration of individual executive directors.
Companies argued that remuneration bands were better as they protected the privacy of their CEOs and boards while still giving shareholders enough information.
But with bands as wide as $250,000, it could be difficult for shareholders to see how much remuneration was changing from one year to the next. You couldn’t tell if remuneration was aligned with value creation. You couldn’t tell.
So, in 2023, we changed the rules to require that companies disclose exactly what they are paying their directors and the CEO.
The rule took effect for annual reports prepared for financial years ending on or after Dec 31, 2024.
So, many companies are reporting exact remuneration disclosures for the very first time. Compliance is not at 100%, not yet, but we are close. And let me say, categorically, we intend to ensure full compliance going forward.
So, why is remuneration disclosure important.
Disclosure is important because it helps investors assess whether the interests of the company’s directors and its CEO are aligned with the investors’ own interest.
And we aim to ensure investors have all the information they need to make informed decisions. Whether there is alignment of interest is important information.
Remuneration disclosures strengthen the accountability of the board and the Remuneration Committee.
They allow investors to set benchmarks and make comparisons.
And they enable informed questioning and voting on director election and remuneration matters at the AGM.
The rule change to require exact remuneration disclosure took care of the “what” question – meaning what is paid.
But, as I understand it, today’s event is also about the “why” and the “how”.
Why is the CEO or the chairman paid this amount? How was the number decided?
It is in asking these two questions, I believe, that we hit at the core of why remuneration is such a sensitive topic.
Many of us see our own remuneration as a measure of our own value. We typically want that value to be as high as possible, but the higher the number the more we open ourselves up to scrutiny.
The instinct then to disclose as little as possible is understandable. But that does not mean that it is justifiable.
Through the lens of the individual, remuneration is a measure of individual self worth and can be personal. Through the lens of the investor, however, remuneration is an indicator of corporate value creation – or at least it should be.
How CEOs are paid in the last financial year should reflect how they have performed. How they are paid in the coming years should be aligned with value creation for shareholders.
Disclosures on remuneration policies are therefore important, and I look forward to the discussions that this report will generate – in the boardroom and in the public sphere.
In fact, let me say this. Much work is already underway, within these walls, to ensure that value creation becomes a much more important consideration, a much more important principle, in making remuneration disclosures.
In conclusion, looking beyond remuneration alone, to disclosures in general, I would also add that regulation can prod companies into disclosing more and disclosing better.
Regulation has its limitations, though. It cannot, for example, directly create value. It can only nurture an environment that is more favourable for value creation.
As the Equities Market Review Group rolls out measures to strengthen the competitiveness of Singapore’s capital markets, we at SGX RegCo will play our role in pushing for higher-quality disclosures that will in turn improve the decision-making environment.
In return, we hope that all the other members of the marketplace play their roles too – whether they are responsible for making disclosures or responding to them.
It is only through every single member playing its part that we can hope to see our market fully value up.
Thank you very much.
