Remuneration of Directors, Secretary and CEOs
In all Singapore, company directors, secretaries and CEOs are responsible for taking up executive duties that help in steering business activities in the right direction. Their importance is paramount, and that means they must be reasonably compensated.
If you work for a company that is struggling to make profits or pay its creditors, but the executive management continues to enjoy hefty pay checks, you need to read further to get enlightened.
Remuneration of Directors
The remuneration of a director can be divided into 2 types:
- Moneys paid to a director as a director (usually referred to as director’s fees); and
- Moneys paid to a director who is contracted to offer his/her services.
You need to make a distinction between the aforesaid as (a) describes payment made to a director with reference to his/her office and is regulated in the manner as discussed below. The latter (b) is usually dealt with by parties’ private dealings and based on employment contract(s).
Regulation of Directors’ Remuneration
Given that the Board is itself mainly responsible for the nomination and appointment of directors, there is a need to ensure that directors do not abuse this power by providing themselves with unwarranted 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 contribution 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 vest 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 your company), or member(s) holding at least 5% of issued shares (not including treasury shares) may notify your company to reveal the directors’ emoluments.
As soon as your 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 moneys paid to them from the preceding financial year.
Before the next general meeting, all authorized 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.
If your company is 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 recognized if it is composed of at least 3 directors, consisting entirely of non-executive directors who should be independent, together with the chairman of RC.
The following duties are 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 from Principle 9 of the Code, companies must clearly disclose their remuneration policies in the annual reports, along with level 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 and 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 its top managers in the disclosure in groups of SGD$250,000.
In practice, most companies have reported 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 its 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.
Professional Fees and Salaries
In situations where one of your employees who is not a director offers his/her professional services independently, it may be possible to separate his/her emoluments as he/she receives as an employee or professional from the emoluments he/she receives as a director.
The emoluments as a director would have to be approved by in a general meeting whereas the professional fees do not have to be approved by the shareholders.
Recovery of Overpayment during Liquidation
In situations where, in the course of winding up, your 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 your 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 majority of the directors.
Remuneration of Company Secretary
The Board usually determines the secretary’s remuneration. Under an outsourcing arrangement of professional services, the company secretary’s wages is paid by the professional firm which would receive the retainer fee from the client company.
Remuneration of CEO
The board of directors are responsible for determining the remuneration of CEOs in Singapore. The Code mentions that through the RC, the board is mandated to determine the CEOs remuneration packages using a general framework.
In Singapore, a number of CEOs are ranked at the same level with some executive employees; therefore, it is recommended that the specific remuneration package for them should match that of executive of equivalent rank.
Any discrepancies or major differences with senior management must be reviewed. However, there is a requirement that companies should disclose the remuneration of CEOs to shareholders once a year.
This article has provided you with key information that will help you understand the remuneration of directors, secretary and CEOs in a Singapore company.
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