SGX mandates exact remuneration disclosures for CEO and directors; removes two-tier vote for IDs


    The Business Times, 11 January 2023

    COMPANIES listed on the Singapore Exchange (SGX) will have to disclose the exact amount and breakdown of the remuneration paid to their chief executive officer (CEO) and directors in their annual reports, Singapore Exchange Regulation (SGX RegCo) said on Wednesday (Jan 11).

    The new rule, following a public consultation launched last October, takes effect for annual reports prepared for financial years ending on or after Dec 31, 2024.

    The frontline regulator has also, with immediate effect, removed the two-tier vote mechanism that allows companies to retain long-serving independent directors (IDs) who have served for more than nine years.

    Issuers will have a transition period, during which IDs whose tenures exceed the limit can continue to be deemed independent until the issuer’s annual general meeting held for the financial year ending on or after Dec 31, 2023.

    SGX RegCo chief executive, Tan Boon Gin, said: “These changes provide an opportunity for companies to inject new skills, experience and knowledge into their boards, all of which will be invaluable in guiding the business for the long term.”

    The Monetary Authority of Singapore (MAS) also said on Wednesday that it has introduced amendments to the Code of Corporate Governance to reflect the new changes to the listing rules. It added that it will amend a notice to real estate investment trust (Reit) managers to reflect the change in remuneration-disclosure requirements.

    Lim Tuang Lee, assistant managing director for capital markets at the MAS, said: “The latest enhancements, which are in line with global best practices, are important steps to further strengthen director independence, encourage board renewal and improve market transparency.”

    SGX RegCo noted the “unanimous support from institutional investors and retail investors” on the proposal for mandatory disclosure of remuneration of directors and the CEO.

    Respondents who disagreed with the proposal were mainly issuers and directors who cited competitiveness, sensitivity and privacy considerations.

    SGX said in its response: “We believe these considerations are outweighed by the fiduciary duty to act in the best interest of the company and its shareholders.”

    The response paper also noted “mixed feedback” on applying the new listing rules on remuneration disclosures to Reits and business trusts.

    “A few” respondents opposed applying such requirements to CEOs of Reit managers and business trusts’ trustee-managers, as they believed that the statutory safeguards would sufficiently protect unit holders’ interests.

    A review of Straits Times Index (STI) constituents’ annual reports by The Business Times last October found that most companies provided full dollar value disclosure of their CEO’s pay, but that STI Reits provided such information only in bands.

    The amended listing rules will apply to Reits and business trusts, SGX RegCo said on Wednesday.

    “Such information is still useful for investors, even if the remuneration is not paid out of the assets of the Reit or business trust, particularly as the interests of unit holders are not necessarily the same as that of the manager or trustee-manager,” it said.

    On the issue of long-serving IDs, the majority of respondents – including retail investors, institutional investors, directors and issuers – supported the proposal for a hard tenure limit.

    The minority of respondents who objected were mainly directors and issuers, who cited a “limited talent pool in Singapore” and low director fees among the reasons.

    Previously, long-serving IDs (LSIDs) could continue to be deemed independent if approval was obtained at two tiers of voting: first, from all shareholders; and second, from shareholders excluding directors, the CEO and their associates. While SGX RegCo had expected issuers to use the provision sparingly, the mechanism has been widely used to retain hundreds of LSIDs.

    SGX RegCo has now imposed a hard tenure limit of nine years for IDs.

    “We recognise concerns raised about the potential loss of LSIDs with valuable knowledge and experience,” it said. “We emphasise that the new rules will still allow issuers to retain their LSIDs, but redesignated as non-independent.”

    Issuers would have to decide on the appropriate board size and composition that will work for their circumstances, in accordance with regulatory requirements.

    The proposals to limit the tenure of IDs and mandate exact remuneration disclosures stemmed from recommendations by the Corporate Governance Advisory Committee (CGAC) last September.

    The CGAC on Wednesday welcomed the amendments to the listing rules and noted that the changes were similar to the practices of other major listing jurisdictions.

    Professor Lawrence Loh, director of the Centre for Governance and Sustainability, of the NUS Business School, said the new rules should not come as a surprise to issuers, as the matter has received much attention among policy and professional circles for some time.

    “The transition period of one year for the ID tenure limit is fair. To begin with, diligent boards and their nominating committees should already always have ready ID candidates in their consideration sets,” he said.

    Wong Su-Yen, who chairs the Singapore Institute of Directors (SID), said the rules on board renewal serve as a catalyst for boards and nominating committees to take stock of the capabilities required to propel growth for the future, and identify new directors with complementary experience and skills.

    “SID’s board appointment services provide access to an extensive directory of directors who are qualified and ready to serve as IDs,” she said. “Boards that leverage this pool of directors will invariably widen their reach, be it in terms of gender, age, ethnicity, industry background, functional expertise or geographical exposure.”