[Blog 53] The Chief Guru Chronicles 202: Independent Director/Non-Executive Director Remuneration Review
Independent Directors/Non-Executive Directors (NEDs’) play a critical role in the governance of companies. They are responsible for providing an independent perspective on the company’s activities and ensuring that its operations are conducted in a responsible and sustainable manner. However, the remuneration of NEDs’ is often a contentious issue, with concerns raised about the transparency, fairness, and adequacy of the compensation packages offered to these directors.
The Current State of Independent Director/Non-Executive Directors’ Remuneration in Singapore
Based on a survey conducted by the Singapore Institute of Directors (SID) in 2019, the median annual remuneration for NEDs’ was S$50,000. However, this figure varied significantly depending on the size and complexity of the company. For example, NEDs’ in large companies with a market capitalisation of over S$1billion received a median annual remuneration of S$150,000.
In recent years, there has been an increasing focus on the remuneration of NEDs’ in Singapore. This is partly due to the implementation of the Code of Corporate Governance in 2018, which requires companies to disclose the remuneration of their directors. Additionally, the Monetary Authority of Singapore (MAS) issued guidelines in 2021 that set out principles for remunerating NEDs’.
The MAS guidelines recommend that the remuneration of NEDs’ should be based on the following principles:
- Pay for Performance: Linked to the company’s performance, taking into account both financial and non-financial factors.
- Fairness and Transparency: Fair and transparent, and should be based on objective criteria such as the director’s experience, responsibilities, and time commitment.
- Independence: Not to compromise on the NEDs’ independence or ability to exercise objective judgment.
- Alignment with Shareholders’ Interests: Aligned with the interests of shareholders, and should not encourage excessive risk-taking or short-term planning.
Conducting a Review of Independent Director/Non-Executive Directors’ Remuneration
The review of NEDs’ remuneration is an important task that requires careful planning and execution. By conducting a thorough review, you can identify best practices for remunerating NEDs’ and make recommendations for improving the current state of NEDs’ remuneration.
To conduct the review, you should follow a structured process that includes the following key steps:
Step 1: Define the Objectives of the Review
The first step is to define the objectives of the review. You will need to identify the key questions that the review aims to answer and the outcomes that the review should achieve.
Some of the questions that the review should seek to answer include:
- What is the current state of NEDs’ remuneration?
- What are the accepted components of NEDs remuneration
- How does the remuneration of NEDs’ vary across different companies and industries?
- Are the principles outlined in the MAS guidelines being followed by companies in Singapore?
- Are NEDs’ being compensated fairly and transparently?
The outcomes that the review should achieve may include:
- Recommendations for improving the remuneration of NEDs’
- Best practices for remunerating NEDs’
- A report that can be used to inform discussions with company boards and other stakeholders
Step 2: Develop a Methodology for the Review
The second step is to develop a methodology for the review. This involves identifying the data sources that will be used, the data collection methods that will be employed, and the analysis techniques that will be applied.
Data sources may include:
- Published annual reports of companies listed on the Singapore Exchange
- Data from the Singapore Institute of Directors (SID) and other industry associations
- Interviews with key stakeholders, including NEDs’ and company management
Data collection methods may include:
- Benchmarking study/surveys based on selected market peers
- Document analysis of published annual reports and other relevant materials
- Interviews with key stakeholders
Analysis techniques may include:
- Descriptive statistics to analyse the distribution of NEDs’ remuneration across different companies and industries
- Comparative analysis on NEDs’ remuneration against peer group
- Regression analysis to identify the factors that influence NEDs’ remuneration
- Qualitative analysis of interviews and other data sources to identify key themes and trends
Step 3: Execute the Review
The third step is to execute the review. This involves collecting and analysing data, developing recommendations, and presenting the findings to key stakeholders.
Key activities may include:
- Collecting data from relevant sources
- Analysing the data using the methodology developed
- Developing recommendations based on the findings of the review
- Presenting the findings and recommendations of the proposed NEDs’ fees structure to key stakeholders, including company boards.
Step 4: Implement the Recommendations
The final step is to implement the recommendations developed. This may involve working with company management to develop best practices for remunerating NEDs’ and providing training and support to company boards.
Conclusion
In conclusion, conducting a review of Independent Director/Non-Executive Directors’ remuneration is an important task that requires careful planning and execution. By following a structured process that includes defining clear objectives, developing a robust methodology, executing the review effectively, and implementing recommendations, you can contribute to the development of fair, transparent, and effective remuneration practices for NEDs’.
HRguru Value Proposition
- Singapore listed companies where we collected pay data from annual reports: 700+
- CEO and Key Management Personnel for whom we have salary data: 2,000+
- Non-Executive Directors for whom we have director’s fee data: 2,600+
- Executive Compensation Experts with extensive experience in Top Executives and Independent Directors Remuneration Review for SGX listed companies.
Some of HRguru Executive Compensation clients
Banyan Tree Holdings, Bund Centre Investment Ltd, Centurion Corp Ltd, Eurosports Global Ltd, Far East Organisation, Fortress Minerals, Frasers Property, FSL Trust, Golden Agri-Resource Ltd, GSH Corp Ltd, Hong Fok Corp Ltd, ICP Ltd, iX Biopharma Ltd, Old Chang Kee Ltd, ParkwayLife Reit, Raffles Medical Group, Riverstone Holdings Ltd, SAC Capital, Sasseur Asset Mgmt, Sinarmas Land, TSL Media Group and more.
