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To contain costs and sustain business profits during the financial crisis, Singapore's top 100 companies made short-term sacrifices by freezing or even slashing the salaries of almost half of their top executives, according to the Ernst & Young 2010 Executive and Board Remuneration Report, Journey to Sound Compensation, released yesterday.

"Singapore companies have generally adopted a conservative approach towards base salary increases, in light of the uncertain economic outlook at the beginning of 2009, (when) compensation decisions were likely to have been made," said Julia Smith, Singapore practice leader for performance and reward at Ernst & Young (E&Y), which compiled the report. "Singapore companies are prepared to make short-term sacrifices at the top level to contain costs and sustain business profits."

The average fixed compensation increase for top executives was 2.4% in FY09 as compared to 10% in FY08. Forty-four percent of the top executives received salary cuts or no increase as compared to only 23% in the previous fiscal year. Chief executive officers led by example, with a quarter of them taking a cut in base pay in FY09. Overall, the number of top executives receiving salary increases of over 15% also declined from 39% in FY08 to only 6% in FY09.

The report also found that 56% of CEOs received fixed compensation of between S$500,000 to S$1 million. The Majority of CFOs and business unit heads received fairly consistent fixed compensation in FY09, with 73% of CFOs and 55% of business unit heads receiving between S$250,000 to S$500,000. The number of business unit heads earning fixed compensation below S$250,000, declined by half in FY09 (from 21% to 11%), signaling market alignment for those who were underpaid in previous years.

Generally, bonuses (expressed as month's pay) paid out to top executives were slightly higher in FY09 as compared to FY08. Overall, 5% of the key executives in Singapore received no bonus in FY09 as compared to 7% in FY08. Again, CEOs led by example with the highest percentage (11% in FY09) of them receiving no bonus payment. The bonuses received by CEOs in FY09 had varied widely, ranging from zero to over S$4 million.

For CFOs, 50% of them received bonuses between S$100,000 to S$500,000. Bonuses paid out to CFOs, which had increased in FY08 and reflected the enlarged role of the CFO during the financial crisis then, had however declined this year.

"Bonuses for top executives improved slightly owing to improving economic conditions and demonstrated growth in FY09 net profits by most of the companies analyzed. However, there is still some way to go before bonuses are reinstated to pre-crisis levels," notes Smith.

Strong Local Compensation Practices

The EY report notes that Singapore companies have made progress in sound compensation practices but there is still room for improvement.

In terms of how Singapore companies fared against the sound compensation principles that the G-20 has agreed to adopt to minimize risky rewards in banks and other financial companies, the report found that a large majority of Singapore companies do not have multi-year guaranteed bonuses--a clear strength in local compensation practices.

Compared to local standards, Singapore has a much lower percentage of compensation delivered through variable pay, and only 20% of companies in Singapore require a portion of variable compensation to be deferred and subject to appropriate clackback. In addition, only 20% of Singapore companies analyzed had fully disclosed their executive compensation practices.

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