Within Singapore, various positions such as company director, corporate secretary, and chief executive officer are all deemed positions of paramount importance, all of which entail the responsibility for taking up executive duties to steer the activities of the business towards its strategic goals. This means that they must be remunerated reasonably for the high stake they have within the business, and furthermore, the amounts involved must be reported.
This blog aims to provide an overview of the key aspects of directors’ remuneration in Singapore.
It is of utmost importance to note that a new rule will be enforced, which is aimed at developing financial transparency within the corporate world and ensuring the alignment between disclosure practices and best global standards.
All Singapore-listed companies must, in their annual reports, disclose the exact amount and the breakdown of salaries and other payments made to their directors and chief executive officers by the company and its subsidiaries. This new decree forms part of a multitude of changes made to the Singapore Exchange’s (SGX) listing rules and the Code of Corporate Governance. This new rule will take effect for annual reports prepared for the financial years ending on or after Dec 31, 2024.
The information that must be disclosed includes the base or fixed salary, variable or performance-related income or bonuses, benefits in kind, stock options granted, share-based incentives and awards, and any other long-term incentives which may apply.
The remuneration of a director can be divided into 2 types:
- Monies paid to a director as a director (usually referred to as director’s fees); and
- monies paid to a director who is contracted to offer his/her services.
It is important to note that there needs to be a clear distinction between the two types mentioned above:
- describes payment made to a director with reference to his/her office and is regulated in the manner as discussed below, and
- is usually dealt with by the parties’ private dealings and based on the employment contract(s).
Types of Directors’ Remuneration
Directors’ remuneration can take various forms, including:
- Director’s fees: This is the most common form of remuneration, which is paid in cash and fixed by the company’s shareholders.
- Bonus: Directors may be awarded a performance-based bonus in addition to their director’s fees. The bonus is usually based on the company’s financial performance or the achievement of specific objectives.
- Share-based remuneration: Directors may also receive remuneration in the form of shares or share options in the company.
- Benefits in kind: Directors may receive benefits such as medical insurance, housing allowances, and car allowances.
Regulation Of Directors’ Remuneration
The Board of Directors are predominantly responsible for the nomination and/or appointment of its directors, and they must therefore ensure that the elected directors do not abuse their power by providing themselves with unwarranted and unjustifiable remuneration and other benefits in their contracts of appointment.
Accordingly, the Companies Act provides that companies that wish to provide or improve emoluments for their directors must do so through a resolution that is not related to other matters.
Here, the term “emoluments” include fees and percentages, expense allowances, as well as any benefits or contributions associated with pension schemes paid in cash to directors.
The Companies Act only regulates emoluments given to directors in respect of their services as directors and not as executives. There is no equivalent provision that requires a resolution to be passed for executive salaries paid to executive directors.
Executive remuneration is an issue that falls within the general powers of management that are vested in the Board. In addition, members are permitted under the Companies Act to reveal the emoluments of directors.
As per Section 164A of the Companies Act, it is required that at least 10% of company members (not including in your company) or member(s) holding at least 5% of issued shares (not including treasury shares) may notify the company to reveal the directors’ emoluments.
As soon as the company receives such a notice, an audited statement must be prepared to disclose the director’s emoluments as well as other benefits paid to them. The information must include all monies paid to them from the preceding financial year.
Before the next general meeting, all authorised members must have received the audited statement. Failure to respond to a proper notice would render your company, along with the directors, liable for a prosecutable offence.
For Singapore companies listed on the SGX, the Code provides that a Remuneration Committee (RC) must be established by the Board of Directors.
This committee can only be legally recognised if it is composed of at least 3 directors, consisting entirely of non-executive directors who should be independent, together with the chairman of the RC.
The following duties are to be carried out by the Remuneration Committee:
- Recommending a general remuneration framework as well as compensation packages for all directors to the board.
- Reviewing the eligibility of directors for benefits under long-term incentive schemes.
Following Principle 9 of the Code, companies must clearly disclose their remuneration policies in their annual reports, along with the levels of remuneration and the procedures used to come up with the remuneration packages.
In particular, Guideline 9.1 of the Code states that a company should relate the directors’ remuneration and their performance. In addition, you must name each director and CEO against their disclosed remuneration, rounding off the figures to the nearest thousand dollars.
Furthermore, apart from the directors and the CEO, the Code obliges companies to include 5 of their top managers in the disclosure in groups of S$250,000.
In practice, most companies have reported according to the brief terms of references of the RC and have generally shared information or disclosed remuneration frameworks pursuant to the Code’s requirements. Some companies have taken the additional step of disclosing the exact remuneration of their directors and key management personnel.
Detailed disclosure is always encouraged, but companies are also mindful of their confidentiality obligations to employees as well as issues regarding retention of and market competition for talents. The depth of disclosure has been a hotly debated topic and will no doubt remain so for some time.
What Happens To Overpayment During Liquidation?
During the course of winding up, and where the company pays a director a salary that appears exceedingly unfair or unjust, the court may instruct such director to repay it. However, it is important to note that the company can only get such reimbursements if the payment was made within 2 years of the initiation of winding up.
You should also note that since company members must approve all emoluments paid to directors, your company can only enjoy such a relief if the approval was voted for by the majority of the directors.
This article outlines and highlights the key information that will help you understand the remuneration of company directors in Singapore and what should be complied with at all times to ensure complete financial transparency. By knowing exactly what information is regulated and what must be disclosed according to the Singapore Exchange’s (SGX) listing rules and the Code of Corporate Governance, your company will always remain compliant and not get into any legal problems when it comes to directors’ remuneration.
Directors’ remuneration is an important aspect of corporate governance in Singapore. So, you need to ensure you are disclosing all the details as per the requirements set by the governing bodies. To do so, you should take help from a reliable and knowledgeable tax consultant to ensure you don’t miss out on any aspect with the new rules in place and that all the finer details are taken care of.