Fill Me In

Singapore Press Holdings (SPH) has recently released their annual report, revealing that their Chief Executive Officer (CEO) received an annual salary of more than S$1.3 million despite the company making net losses due to COVID-19, drawing much criticism from netizens.

The general discontent echoed sentiments from previous instances when CEOs continued to draw high salaries despite companies doing poorly. For instance, Singapore Airlines (SIA) received over S$4.2 million in remuneration for FY19/20, which ended in March 2020, even though SIA reported losses of S$212 million the same financial year. 

But why exactly do CEOs get paid top dollar? And is it justifiable, particularly when companies are making losses? 

How are CEOs paid?

The pay structures of CEOs are actually vastly different from that of normal employees. For many Singaporean companies, the CEO compensation package is likened to that of a three-legged stool, comprising their fixed pay, short-term incentives, and long-term incentives. 

Short-term incentives are similar to annual bonuses that employees get and are measured based on the one year performance of the company. Meanwhile, long-term incentives (LTIs) are meted out based on a performance period of three to four years.

Usually, the pay meted out to CEOs are pegged to peer companies of a similar industry and size. The prevailing trend is that the bigger a company gets, the less they get in terms of fixed salaries, with the other incentives taking up a larger proportion of their remuneration. 

Generally, remuneration for CEOs consists of more than just straight cash. They can also include other perks like stock options, although companies have been moving away from this in recent years. 

How much is a typical CEO paid?

While the numbers obviously differ from firm to firm, Dr Wealth calculated that the median remuneration of CEOs in Singapore is approximately S$500,000, with numbers ranging from not getting paid at all to an upwards of over S$13 million. 

Yet, The Business Times cautions against taking the remuneration of CEOs at face value. According to them, pay disclosures often do not accurately reflect the take-home pay of CEOs, which can be significantly lower in reality. 

So…are CEOs actually paid too much?

The question remains up in the air, but it seems that for the most part, the remuneration CEOs receive are pegged to their performance in leading the company. 

A report done by Willis Towers Watson from December 2018 revealed that while the total value of rewards accorded to CEOs has increased by 20 per cent in the past five years, the value of their fixed salary and take-home total has actually stayed flat. This suggests that the boost in pay actually comes from them achieving their LTIs. 

Additionally, a majority of CEOs are still unable to unlock their LTIs. In the same report, it was found that for every S$100 worth of reported LTI granted in Singapore, executives took home only a quarter. Thus, they suggest that the link between pay and performance in Singapore is reasonably strong, particularly when examining the take-home pay of CEOs. 

But what about when companies are making losses?

The contrast between high-paying CEOs and companies making losses generally do not sit well with the common folk, but this phenomenon should not always be taken at face value. 

After all, a company’s performance can be due to many extraneous factors that are not within the CEO’s control. For instance, many companies reported a lower profitability in 2016, possibly due to the oil price slump. In such cases, it’s possible that CEOs still get paid their due despite the overall performance of the company. 

Ultimately, a balance needs to be maintained regardless of extraneous factors. This means that executives will not be paid excessive bonuses in good times, or zero bonuses in bad times. Maintaining this balance will create help to create lower volatility in companies. 

Moreover, it’s important to always look at the situation in context. If, in a hypothetical situation, a pandemic hits and the company makes losses, should the CEO still be compensated well? It will then depend on his or her performance — it is possible that the CEO in question has taken action to prevent what would have been even larger losses, and is thus deserving of a bonus even if the company is still making losses overall, since the company slump might be due to factors that are outside of their control. 

So what?

At the end of the day, the message behind this article is to take a holistic view of the matter and not judge these executives on face value. Oftentimes, a company’s circumstances and pay structure are not as simplistic as they may appear. 

Ultimately, a CEO’s pay is not within their control, so perhaps we are all pointing our fingers at the wrong people, if we should be pointing them at all.

 

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