For a start, the compensation package of a CEO is very different from a typical employee on various counts - and not just the amount.
According to Christine Koh, senior client partner, advisory at Korn Ferry Singapore, the remuneration committee is in charge of establishing a governance foundation for compensation to ensure that it is"fair and equitable". Long-term incentives , on the other hand, take into account a performance period of three to four years, where companies make contingent grants subject to achievement of performance conditions after the fixed time frame.
Prof Mak points out a trend where the bigger the company gets, the fixed salary component tends to fall as a percentage of the total remuneration, and the bonus and share incentive components increase. There is a premium for directors sitting on remuneration committees because of the expertise needed and the reputation risk involved."No one wants to be on the front page for rewarding the CEO several million dollars when the share price drops," he says wryly.Kumar Subramanian, partner, South-east Asia, talent, rewards & performance, Aon, says that the LTI component here is"quite modest" compared to countries such as the US, UK and Australia.
However, the value of the base salary and take-home total compensation has actually stayed flat, if not lower, says Mr Ganu. Thus, while annual report disclosures suggest that CEO pay levels are going up and may seem misaligned with company performance, this is actually misleading, continues Mr Ganu. Commenting on the discrepancy, Mr Ganu notes that in FY2016, companies might have experienced the impact from the slump in oil prices which had muted company performance - a factor which management may not necessarily have control of.
"Imagine being a shareholder of a $100 million loss-making business: if through the efforts of management, they were able to improve the position in one year to only a $10 million loss - then in that context, it might make sense to pay management bonuses, but not full amounts, for helping turn the business around, and stemming some of the historic losses," he says.