Shareholders deserve more metrics against which they can benchmark CEO pay

UOB chief executive Wee Ee Cheong pipped DBS’ Piyush Gupta for the title of best-paid CEO among the Straits Times Index (STI) constituents last year, according to data recently compiled by The Business Times.

Wee’s total remuneration for FY2023 was S$15.9 million, up 11.9 per cent from S$14.2 million last year. Gupta’s was S$11.2 million, down 27 per cent from S$15.4 million last year.

On the surface, Gupta has taken a huge cut in remuneration. This makes sense because the bank’s services were disrupted several times last year, including one bout lasting over 12 hours.

DBS said variable compensation for the group’s management committee was reduced by 21 per cent over the previous year, and by 30 per cent for the CEO.

UOB, meanwhile, reported a 26 per cent increase in core profit. Against that backdrop, Wee’s remuneration increase seems reasonable.

The data also shows the three Singapore banks – DBS, UOB and OCBC – compensate their CEOs more handsomely than most locally listed companies do. The only other CEO whose annual remuneration was in the eight-digit range was Kuok Khoon Hong, who heads commodities producer Wilmar International.

Again, this makes sense – remuneration should be competitive. Gupta and OCBC CEO Helen Wong could command premium salaries at rival banks.

James Gorman, the recently retired CEO of US bank Morgan Stanley, was paid US$37 million last year – about S$50 million. Brian Moynihan, CEO of Bank of America, received US$29 million.

So far, so good. Singapore doesn’t have say-on-pay rules, but if it did, the remuneration packages of top executives should not attract controversy.

Nevertheless, Singapore companies can afford to make some improvements in governance standards and disclosures on the remuneration front. They should disclose compensation ratios, for a start, and better substantiate pay packages with appropriate metrics.

What constitutes fair remuneration?

The topic of remuneration is prickly, which is one reason why most Singapore-listed companies don’t disclose figures unless compelled. More data tends to invite more criticism, which is why many companies prefer to stay private.

For publicly listed companies, the disclosure of some metrics is unavoidable. One of these is the proportion of deferred compensation and share-based compensation – the higher the proportion, the greater the alignment between shareholders and executives.

Let’s return to the example of UOB and DBS – selected because they are at the top of the table, and are relatively comparable.

UOB’s Wee received S$1.2 million in salary, S$14.7 million in bonus, and S$39,701 in benefits-in-kind. The latter category includes a driver.

Sixty per cent of the bonus, or S$8.8 million, will vest over the next three years. Of that S$8.8 million, 40 per cent, or S$3.5 million, will be paid in cash. The rest will be in the form of “share-linked units”, according to the bank’s annual report.

DBS’ Gupta received S$1.5 million in salary, S$4.1 million in cash bonus, S$5.6 million in deferred compensation and S$72,992 in non-cash components comprising a club membership, a car and a driver.

Of the deferred compensation, 17.4 per cent, or S$965,874, will be paid in cash. The rest will be in the form of shares.

This means half of Gupta’s remuneration was deferred, whereas Wee’s ratio was slightly higher – at 55 per cent. DBS appears to have a better cash-to-share ratio, though – roughly 59 per cent of Gupta’s remuneration was in cash, versus 67 per cent for Wee’s.

Another metric drawing more attention in the international arena is the CEO pay ratio – or how much more the CEO is paid than the average worker.

Standards issued by the Global Sustainability Standards Board (GSSB) recommend the disclosure of the annual total compensation ratio, which is the ratio of compensation for the highest-paid individual versus the median excluding that individual.

Many Singapore-listed companies use the GSSB’s template for sustainability reporting, but the only STI company to disclose this ratio in its latest sustainability report was Singtel. Its ratio was 39 to 1, and the company should be applauded for having the courage to say so.

Other companies either do not follow the GSSB template, address the question by referring shareholders to broad disclosures about remuneration, or plead “confidentiality constraints” – as if this anonymised figure would somehow reveal too much.

Improving benchmarks for remuneration

Undoubtedly, many countries fare worse than Singapore on pay transparency. If Singapore’s companies desire to be best-in-class, however, some improvements may be in order.

Consider Morgan Stanley’s Gorman, who is given a report card every year that is published online.

The latest one from April 2024 shows Morgan Stanley delivered a total shareholder return (TSR) of 285 per cent during his tenure. The bank’s TSR outperformed the average of its global peers and the S&P 500 financial index over a three and five-year period.

Also, 75 per cent of Gorman’s pay is in equity, including 100 per cent of his deferred compensation.

These justifications haven’t stopped Gorman from being paid very well. His pay in 2022 was 274 times the median pay of a Morgan Stanley employee.

Some may suggest the modest compensation of Singapore’s CEOs is proof that more transparency doesn’t lead to better results.

Yet, keeping a cap on pay is just one potential benefit of transparency. Shareholders deserve to know why compensation is deserved.

Elon Musk, CEO of electric vehicle maker Tesla Motors, recently won a shareholder nod for a pay package of US$56 billion – possibly thanks to significant campaigning by the board. The vote is not binding, but shows shareholders don’t mind bestowing riches on those who also make them rich.

Practices of companies such as Tesla and Morgan Stanley help normalise accountability to shareholders who – lest boards forget – are part owners of a company. These shareholders deserve better metrics to justify remuneration decisions.