Procedures for Developing Remuneration Policies
7 There should be a formal and transparent procedure for fixing the remuneration packages of individual directors. No director should be involved in deciding his own remuneration.
7.1 The Board should set up a remuneration committee ("RC") comprising a majority of non-executive directors who are independent of Management and free from any business or other relationships, which may materially interfere with the exercise of their independent judgement. This is to minimise the risk of any potential conflict of interest.
7.2 The RC should be chaired by an independent non-executive director, and have at least one member who is knowledgeable in the field of executive compensation, failing which the committee should have access to expert advice inside and/or outside the company.
7.3 The RC will recommend to the Board a framework of remuneration for the Board and key executives, and to determine specific remuneration packages for each executive director and the CEO (or executive of equivalent rank) if the CEO is not an executive director. The committee's recommendations should be made in consultation with the chairman of the Board and submitted for endorsement by the entire Board. The committee should cover all aspects of remuneration, including but not limited to director's fees, salaries, allowances, bonuses, options, and benefits in kind.
Level and Mix of Remuneration
8 The level of remuneration should be appropriate to attract, retain and motivate the directors needed to run the company successfully but companies should avoid paying more for this purpose. A proportion of the remuneration, especially that of executive directors, should be linked to performance.
8.1 In setting remuneration packages, the company should be aware of pay and employment conditions within the industry and in comparable companies. The remuneration packages should take into account the company's relative performance and the performance of individual directors.
8.2 The performance-related elements of remuneration should form a significant proportion of the total remuneration package of executive directors and should be designed to align their interests with those of shareholders and link rewards to corporate and individual performance. There should be appropriate and meaningful measures for the purpose of assessing executive directors' performance.
8.3 The remuneration of non-executive directors should be appropriate to the level of contribution, taking into account factors such as effort and time spent, and responsibilities of the directors. Non-executive directors should not be over-compensated to the extent that their independence may be compromised. The Board may, if it considers necessary, consult experts on the remuneration of nonexecutive directors. The Board should recommend the remuneration of the non-executive directors for approval at the AGM.
8.4 In the case of service contracts, there should a fixed appointment period for all directors, after which they are subject to re-election. In any case, service contracts should not be excessively long or with onerous removal clauses. The RC should consider what compensation commitments the directors' contracts of service, if any, would entail in the event of early termination. The committee should aim to be fair and avoid rewarding poor performance.
8.5 Long-term incentive schemes, including share schemes, are generally encouraged. The RC should consider whether directors should be eligible for benefits under long-term incentive schemes. The use of share schemes, including share option schemes, should be weighed against other kinds of long-term incentive scheme. In normal circumstances, offers of shares or granting of options or other forms of deferred remuneration should vest over a period of time. The use of vesting schedules, whereby only a portion of the benefits can be exercised each year, is also strongly encouraged. Directors should be encouraged to hold their shares beyond the vesting period, subject to the need to finance any costs of acquisition and associated tax liability.
Disclosure on Remuneration
9 Each company should provide clear disclosure of its remuneration policy, level and mix of remuneration, and the procedure for setting remuneration, in the company's annual report.
9.1 The Board should report to the shareholders each year on the remuneration of directors and at least the top 5 key executives (who are not also directors) of the company. This annual remuneration report should form part of, or be annexed to the company's annual report of its directors. It should be the main vehicle through which the company reports to shareholders on remuneration matters. The members of the RC should be listed in the report.
9.2 The report should set out the names of directors and at least the top 5 key executives (who are not also directors) earning remuneration which falls within bands of S$250,000. There will be no upper limit. Within each band, there will be a breakdown (in percentage terms) of each director's remuneration earned through base/fixed salary, variable or performance-related income/bonuses, benefits in kind, and stock options granted and other long-term incentives. Companies are however encouraged, as best practice, to fully disclose the remuneration of each individual director.
9.3 For transparency, the report should disclose the same details of the remuneration of employees who are immediate family members4 of a director or the CEO, and whose remuneration exceed S$150,000 during the year. This can be done on a no-name basis with clear indication of which director or the CEO the employee is related to.
9.4 The report should also contain details of employee share schemes to enable their shareholders to assess the benefits and potential cost to the companies. The important terms of the share schemes, including the potential size of grants, methodology of valuing stock options, exercise price of options that were granted as well as outstanding, whether the exercise price was at the market or otherwise on the date of grant, market price on the date of exercise, the vesting schedule, and the justifications for the terms adopted, should be disclosed.
9.5 The Board's annual remuneration report need not be a standard term of agenda for AGMs. The Board should, however, consider each year whether the circumstances are such that the AGM should be invited to approve the policy set out in the report and should minute their conclusions.
4 As defined in the Listing Manual of the Singapore Exchange to mean the spouse, child, adopted child, step-child, brother, sister and parent.