Research suggests disclosures do more to increase salaries than to suppress them

Singapore CEOs may get richer after being forced to reveal pay

Chief executives who have been grumbling about Singapore’s new mandatory pay disclosures could be in for a pleasant surprise: a raise.

Formalised in January, the Singapore Exchange’s new rule requires listed companies to disclose compensation for CEOs and individual company directors, inclusive of base salary and any bonuses or incentive pay, starting with financial years ending on or after Dec 31, 2024.

Executive pay disclosures are considered good corporate governance, a sign of more transparency and a tool for investors to scrutinise excessive pay packages. Such measures have been standard in the United States, Britain and the European Union for decades.

But research suggests that pay disclosures have done more to increase executive compensation than to suppress it. Companies face pressure to raise pay to retain top employees, with comparisons made not only domestically but also internationally, according to experts.

“The result of disclosure has been a ratcheting up in pay – companies copy the pay practices of other companies as they fear being left behind with the least able top executives,” said management practice professor Alexander Pepper at the London School of Economics and Political Science. There is “little evidence” that disclosure has had the desired effect of moderating pay, he added.

Among Singapore-listed firms, less than 40 per cent of the 103 companies tracked by Bloomberg disclose pay. The group includes mostly mid- to large-cap companies that publicly publish environmental, social and governance data.

Prof Pepper highlighted the London Stock Exchange, which in 1995 began to require companies to disclose remuneration. Between 1995 and 2017, CEOs of companies in the FTSE 100 Index saw their pay rise about 10 per cent a year, more than triple the average annual increase in British national earnings.

Meanwhile, nine-figure pay cheques are proliferating in the US. More than 30 public company executives took home US$100 million (S$134 million) or more at the end of fiscal year 2021, according to the Bloomberg Pay Index.

When faced with disclosure requirements, firms tend to reduce reliance on stock awards and perks as a form of compensation primarily to avoid media scrutiny, rather than reducing any overall pay package, according to a 2022 study led by researchers at the University at Buffalo School of Management.

“Boards significantly adjust the mix of compensation awarded by reducing the sensitivity of CEO pay to equity price changes, particularly when the CEO is likely to garner media scrutiny,” the authors wrote.

While the biggest financial firms in Singapore already disclose pay – DBS Bank CEO Piyush Gupta’s 2021 pay jumped 48 per cent to $13.6 million – the new requirements will shed light on the pay packages for executives at plenty of other large companies. Thai Beverage, Olam Group and Genting Singapore are among the biggest companies in Singapore that do not disclose pay.

ThaiBev and Genting Singapore did not respond to requests for comment. Olam declined to comment, citing a blackout period before results.

“There will be those that welcome it and those that have to get used to it, but we do encourage greater levels of transparency on balance,” said Mr Kurt Wee, president of the Association of Small and Medium Enterprises in Singapore.

For entrepreneurs, it is more for “competitive confidentiality” that they may prefer to keep such disclosures more broad, he added.

The move will mark a sea change for Singapore, where a culture of silence on pay and competition concerns mean disclosures are often sparse. State investment company Temasek and sovereign wealth fund GIC are unlisted and limit their disclosures to “compensation approaches”, not specific figures.

“If companies shift to more transparency, they must ensure that the pay structure is legitimate and pay differences can be explained, or be prepared to take remedial action to correct the problems,” said Professor Jason Shaw at Nanyang Technological University’s Nanyang Business School. “Otherwise, they risk a slew of negative reactions.” BLOOMBERG

[Source: StraitsTimes, “Singapore CEOs may get richer after being forced to reveal pay”]

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