Companies’ nonchalance toward SGX queries on pay shows why mandatory disclosure may be necessary

SINGAPORE Exchange Regulation (SGX RegCo) is seeking feedback on a proposed rule change that would make it mandatory for listed companies to disclose how much they pay their chief executives and directors.

There is likely to be some pushback from companies and boards, but recent developments have reinforced the importance of pushing the change through anyway.

SGX RegCo published its consultation paper last Thursday (Oct 27).

Just two days earlier, Sakae Holdings was asked to elaborate how specific disclosure of remuneration details for Douglas Foo –its founder, chairman and controlling shareholder – and his sister, Foo Lilian, who is chief executive, would be prejudicial for competitive reasons, given the nature of their relationship to the company.

The mainboard-listed food and beverage company had provided remuneration disclosures for directors in bands of S$250,000 in its annual report. This falls short of provisions in the Code of Corporate Governance, which call for full disclosure of CEO and director remuneration.

Sakae Holdings cited competitive reasons in its response to SGX’s query, saying there is “keen competition for talent in the food and beverage industry”.

Sakae said specific disclosure of remuneration details of directors, family members of directors and the CEO “would adversely impact the company’s operations and business due to the sensitive nature and confidentiality of such information”.

The explanation doesn’t specifically address why the chairman or CEO – who are so closely tied to the company – are at risk of being poached away, simply on the basis of full disclosure of their pay; neither does it make clear why sharing additional details of their salary would be detrimental to the company.

Sakae is but one example, and the company’s approach to remuneration disclosures is hardly unusual on the Singapore Exchange.

Widespread practice

A review of corporate governance disclosures by KPMG in Singapore, published in September, found that only 35 per cent of companies disclosed the actual remuneration of directors on a named basis; 18 per cent did so for CEOs.

Meanwhile, 59 per cent of companies disclosed directors’ remuneration in bands, and 75 per cent of companies did so for CEO’s remuneration.

A separate report from the Singapore Institute of Directors (SID) released last year also noted directors’ remuneration was among the least-complied-with provisions of the CG Code.

The SID study also found that small-cap companies – those with under S$300 million in market capitalisation, which formed nearly three quarters of the study’s population – were less likely to provide detailed disclosure on remuneration.

Just 27.8 per cent of small-caps provided precise disclosure of individual directors’ annual remuneration. This was lower than the 51.2 per cent observed for mid-caps, and 80 per cent for large-caps with market capitalisation above S$1 billion.

The lack of in-depth disclosure by companies could perhaps be acceptable if robust explanations for non-compliance are provided, but boilerplate responses appear to be the norm, with confidentiality and competition among the top explanations.

SGX RegCo chief executive Tan Boon Gin said at a press briefing in September that there was “liberal use of competitive reasons for explaining the non-disclosure” for both directors and key executives.

He noted that this argument was much less compelling for directors than key management personnel.

Of course, companies may have their own reasons for declining to disclose detailed remuneration.

Pay is a sensitive issue for individuals. Hardly anyone, if given the choice, would want their full remuneration disclosed in public.

But public companies – even those very tightly held or controlled – need to remember they have multiple stakeholders to answer to.

Greater transparency on remuneration practices will enable shareholders to assess alignment of interest, and would have to outweigh whatever discomfort each individual may feel.

Moving forward

The latest consultation focuses on the mandatory disclosure of remuneration of directors and the CEO, but SGX has not proposed any mandatory disclosure requirements for the top five key management personnel of companies.

SGX noted that most major jurisdictions, including the United Kingdom, United States and Australia, have legal requirements for such remuneration disclosures.

“Our proposal will therefore bring Singapore’s disclosure requirements on director and CEO remuneration in line with global standards,” the paper said.

Experts The Business Times spoke with previously noted that such disclosures are becoming increasingly necessary in the global competition for investors’ dollars.

Large institutions would naturally be more comfortable investing with transparent companies and want levels of disclosures to be in line with other major jurisdictions.

Poaching concerns may not be as significant as companies fear, as the experts said compensation is seldom the only factor driving people’s decision on where to work.

In any case, it also isn’t very convincing that key executives, directors and CEOs who are founders and/or controlling shareholders would be easily lured away from their own companies with higher salaries.

The comply-or-explain nature of the Code of Corporate Governance makes it unsurprising that many listed companies opt for the path of least resistance by using standard answers to explain non-compliance.

But a continuous cycle of questions and unsatisfactory answers doesn’t lead the market anywhere.

Mandatory requirements would mean companies have to abide by the intent of existing CG Code provisions, and corporate governance standards could move forward.

Over time, it may also be worth considering whether mandatory requirements should also be extended to other remuneration disclosure provisions under the CG Code that apply to key management personnel or family members of directors, the CEO or substantial shareholders.