Shining more light on non-ED remuneration

NON-EXECUTIVE director (NED) remuneration often receives little attention from investors because their amounts generally do not make much of a dent on the profits of a company. However, poorly conceived NED remuneration schemes can compromise the independence of independent directors (IDs). Some codes of corporate governance recommend that NEDs be remunerated differently from executive directors (EDs) and highlight that how NEDs are remunerated may be relevant in assessing their independence. The UK Code specifies that NED remuneration should not include share options or performance-related elements, and that holding of share options could be relevant to the determination of director independence.

In Singapore, many companies still disclose individual NED remuneration in meaningless bands of "below S$250,000", even though the Code recommends disclosure of the exact remuneration. Tenuous reasons for not disclosing fully the remuneration of EDs and key executives, such as fear of poaching or loss of competitive advantage, are even less convincing in the case of NEDs. Further, as the examples below show, what makes up NED remuneration, how it is determined, and the amounts put to shareholders for approval are often unclear or questionable.

Last year, Chew Yi Hong and I wrote about Natural Cool Holdings ("Burning issues at Natural Cool Holdings", BT, June 24). We questioned the ex-gratia payment equivalent to three years of director fees to the three IDs "as a token of appreciation and recognition of their contribution in the past years rendered to the company and/or its subsidiaries as independent directors". The IDs had been involved in what we felt were contentious decisions made by the company. These included acquiring and then proposing to dispose of a paint business after just eight months through an interested person transaction (IPT) which involves the company taking a hair-cut on an inter-company loan - although the IPT was subsequently aborted.