Spiralling CEO pay
In sagging economy, profits down and large retrenchments, executives of listed companies - whether ST Assembly, Comfort or anyone else - get large renumerations. By Seah Chiang Nee
Oct 9, 2002

Lately two controversies stirred public reaction in a way they would not have in better times.

Government-linked company, ST Assembly Test Services paid its former chief executive, Mr. Tan Bock Seng, "consulting" fees of S$465,000 a month for 6 months between January and June.

It went undisclosed for months allegedly due to an oversight. Tan was also paid S$1.8 million bonus in recognition of his services.

The benefits were paid while the company, Asia's No. 2 chip tester, had just reported a loss of S$38.6 million in the 2nd quarter. Prospects for the immediate future are dim.

Then came news that Mr Goh Chee Wee, managing director of taxi operator Comfort drew $1.43 million in remuneration last year.

These controversies came as workers continue to lose jobs in large numbers and the stock market keep sliding deeper into a dark hole. "Everybody is losing out except for a small band of CEOs," are some public complaints.

There is already a strong backlash in America to executives granting themselves astronomical payments, levels that tower over even the worst case in Singapore.

For years, Singapore's corporate culture had closely tracked America's, including the exorbitant way its corporate executives are paid.

It peaks at the wrong time, though. When the economy was thriving, many corporate chiefs were paid modestly but in the past two badly hit years when the whole nation suffered, some had got eye-popping payments.

This contrasted with the principle of shared-pain and shared-rewards the government wants to see.

CEO payments in Singapore had been rising.

In an effort to turn themselves into global entities, several banks and government-linked companies had recruited top world talent from both east and west, offering top dollars.

Some were evidently over-paid relative to performance. A few had reversed the trend resulting in the exit of several CEOs.

Singapore was not alone in the high paying game.

From Tokyo to Taipei, Milan to Mexico City, executive-pay was - and still is - rising and sweeteners such as bonuses and options are being stirred into the mix.

But two factors are slowing down this trend - the economic downturn and a public revolt against excesses in America.

Recent cases of corporate greed in Enron, Qwest Communications and 21 other companies whose accounting is under investigation have resulted in a public - especially shareholders - backlash.

Even before the collapse of Enron, shareholder and employee representatives had already been taking a much larger interest in CEO pay - worldwide.

In America CEO greed has been soaring out of control.

According to Business Week, the average executive of a major US corporation made 42 times more than a typical factory worker in 1980. By 1990, that ratio was 85 times and in 1998, it had reached a staggering 419 times.

At this rate, the average CEO would make the salary equivalent of more than 150,000 American factory workers in 2050.

The former head of Apple Computer, Gilbert Amelio, is a great example. As The Wall Street Journal noted in its executive pay report, Apple lost nearly US$2 billion during Amelio's brief tenure of 17 months.

About 3,600 employees lost their jobs. Amelio's golden parachute included US$6.7 million in severance pay plus other compensation.

In whatever society, excessive CEO payments have an implicit message: The chief deserves nearly all the credit for the company's success.

In the crazy world of corporate compensation, some excesses are taking place that should not. CEOs, for example, rake in millions through good times and bad, while workers are downsized and get pay cuts.

Another bad habit I hope we will not pick up from the Americans is paying multi-million dollar "retention bonuses" to executives who have no intention of leaving.

Wall Street executive Julian Robertson says it well: "Everybody here is overpaid, knows they are overpaid and is determined to continue to be overpaid."

Management guru Peter Drucker has long been disgusted with the "unconscionable greed of CEOs."

In an interview with Wired magazine, he endorsed banker J.P. Morgan's idea that the proper ratio "between the top people and the rank and file should be twenty-fold, post-tax ... Beyond that, you create social tension."

Proponents of the practice argue it this way: As corporations become more multinational, they have to compete for talent. And that can cost plenty.

"Big companies are starting to realise that they're in an international market for staff," says a consultant who specialises in executive compensation in Europe.

"When you have a multibillion-dollar market cap, you don't want to get a second- or third-choice CEO. Paying a really skilled CEO a lot of money can still be a bargain in the long run."

Yet, in no other country do corporations coddle their CEOs as in the US, where the average CEO earned an almost unfathomable US$13.1 million last year.

Japanese CEOs, including those running large worldwide companies, come out looking like paupers compared to their American counterparts.

Pay for the big cheese at a Japanese firm ranges from US$300,000 to US$500,000 on average, with bonuses averaging a measly 10%. Remuneration in Singapore overshadows theirs.

In fact, Singaporean managers are the second highest paid in Asia, next to Hong Kong.

The latest survey shows executive remuneration in the Republic is 37 times the average employee compensation compared to 38 for Hong Kong.

Other ratios are: Thailand (23 times), Australia (22), Shanghai, China (21) New Zealand (16), Taiwan (15), South Korea (11) and Japan (10).

As American companies and other multinationals expand their international reach, local outfits are raising defences to hold on to their talent.

Europeans don't want to be left behind, either. In England, where CEO compensation perhaps most closely resembles the American model, pay levels are still shy of US ones, but they're nosing up steadily.

Despite the recent run-ups, Singaporean executive payments are still low in comparison to America's, although they are steadily rising.

One factor calls for special consideration here is the large government role in many listed companies.

In other companies, it is the public investors who are guardians against executives excesses; but in companies controlled by Temasek - the government's holding company - the duty rests with the government.

Seah Chiang Nee