Volume 2 Issue 7
HR in the Boardroom | Boards Focus on their CEOs | Paying the Family | Increasing Board Effectiveness 

Boards Focus On Their CEOs

Highlights From The 2008/09 Singapore Board of Directors Survey

Singapore corporate boards are putting more effort into assessing the performance of their CEOs according to a recent survey¹ released by the Singapore Institute of Directors (SID) and Singapore Exchange (SGX), and conducted by Aon Consulting’s Global Research Center. According to the survey, 78% of the companies conduct CEO performance evaluation periodically, of which 40% are formal evaluations. “If you look at the post-crisis environment, there's a lot more emphasis on having good governance processes in place to manage executive compensation and performance issues,” said Na Boon Chong, director of Southeast Asia Consulting, Aon Consulting.

“Some of the more heartening findings of the survey are the increased number of companies doing performance appraisal, the increased number of companies where the boards are involved in CEO evaluation and management succession, and the increasing … number of companies sending their non-executive directors for training,” said John Lim, president of Singapore Institute of Directors.

Boards push performance and succession planning

It is not just the CEO’s performance that the Board is evaluating. Succession planning for the CEO and the top executive team was cited by 74% of the companies participating in the survey as a topic of concern for the Board of Directors (36% of them adopt a formal approach to succession planning). About seven in 10 companies engage in development planning for the CEO and the top executive team, with 57% adopting a formal approach. The board of directors undertakes this responsibility in 36% of the companies.

Many companies also assess the performance of their boards (72% of companies surveyed), board committees (47%) and individual directors (52%). An increasing number of companies engage an external party in conducting such appraisals: 6% for board appraisal, 6% for board committees appraisal and 8% for individual directors appraisal. External parties can provide some objective criteria and offer a constructive perspective for future improvement.

More companies employ the following criteria to assess the performance of the board as a whole: constructive discussions and interactions amongst directors (72%), board’s contributions towards the development of company strategy (70%) and board’s response to crises and urgent issues (65%).

To assess the contribution of individual directors, the most commonly used criteria include the director’s participation at board/committee meetings (59%), contribution of specialized knowledge (56%), willingness to ask questions and give constructive suggestions (54%) and contribution to the company’s business development (52%).

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CEO pay rising but still below S$1 million

The most common range of annual compensation for Singapore CEOs falls between S$250,000 and S$500,000. The annual compensation of the top four executive directors and/or senior executives is generally below S$250,000. As compared to the 2005 survey, a higher proportion (26%, vs. 17% in 2005) of CEOs receive above S$1 million and the proportion of top executives receiving between S$500,000 and S$1 million increased from 13% in 2005 to 17% this year.

Given the focus of corporate governance on the creation of long-term shareholder value, long-term incentive plans have grown in importance in Singapore. Stock option is still the most commonly used long-term incentive tool (51%/56% for CEO/top executives), followed by performance share plan (28%/25% for CEO/top executives) and restricted share plan (15%/17% for CEO/top executives).

The most popular variable compensation tool used to compensate executive directors is bonus in cash (77%), followed by share options (24%). A modest number of companies (10%) used performance share plans as part of the variable compensation schemes for executive directors.

A large proportion (79%) of companies have a result-oriented component in the compensation packages of their CEOs and executive directors. Value-oriented criteria (e.g., economic profit) are used by 29% of companies to determine the value of variable incentive plan for the CEOs and executive directors. The inclusion of value-oriented criteria can reinforce the balance between performance management and risk management, which is important for both financial institutions and industrial companies. 

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Non-Executive Directors earn S$25-50,000

The basic fee received for board participation by non-executive directors is most frequently within a band of S$25,000 to less than S$50,000. The most common range for additional fees paid for being Chairman of the Board is above S$30,000 this year. The corresponding range for being Chairman and member of the audit committee is S$10,000 to S$20,000.

An increasingly popular practice in developed countries such as the US, UK and Australia is for the board to adopt performance share plans encouraging its non-executive directors to own shares in the company, which helps to align the directors’ interests with the interests of long-term shareholders. Three companies participating in the survey have taken the lead in adopting this practice. 

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Contact

For more information about Aon Consulting’s work in corporate governance, please contact Na Boon Chong, Director of Southeast Asia Consulting, at boon_chong_na@aon-asia.com. Please contact client_services@aon-asia.com if you would like to purchase a copy of the survey. 

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