More rules won't help in exec pay issues

More regulation is not the answer for dealing with executive compensation issues, said two panellists at a discussion on corporate governance yesterday.

Qian Hu Corporation executive chairman Kenny Yap and RSM Ethos managing director Tay Woon Teck both said that executive pay in Asia is not excessive and family-managed businesses do set good examples.

Mr Tay, an auditor and business adviser, said that as companies have to disclose CEO and director pay in annual reports, they want to avoid awkward shareholder questions by not paying excessively.

"In Singapore, Chinese-managed businesses are very thin-skinned. They don't like to be challenged at AGMs. The reality is they tend to make sure they are not out of the norm," he said.

There are various regulating mechanisms in play already and more rules like pay caps should not be set, he said.

Mr Yap, the boss of the mainboard-listed homegrown ornamental fish breeder, said it is difficult to run a company when other people are telling him how to pay.

"If you're bad, whatever regulations you have, you'll still be bad," he said.

The two were speaking at the second day of the 4th Asian Investors Corporate Governance Conference. The conference is part of this year's Corporate Governance Week organised by investor lobby group Sias, or the Securities Investors Association (Singapore).

Mr Tay said companies here are regulated on pay in other ways - through an independent element on remuneration committees, and through a clawback mechanism in pay contracts that will be activated in the event of fraud, as suggested by the code of corporate governance.

Businesses also believe a Chinese saying to the effect that "if I don't behave, take more than I deserve, the people down the line will do monkey business", he said. "There's this ethical limit which I find encouraging."

Other panellists, however, see things differently.

Hong Kong shareholder activist David Webb said that in some family-run companies, "the amount you're paid depends on your surname".

And for government-controlled companies there, good professionals are not being paid enough, while others get shifted around various posts too often for investors' liking, he said.

David Smith, head of corporate governance at Aberdeen Asset Management Asia, said that disclosures on pay are not as much an issue compared with how pay tends to get "ratcheted up".

This happens as the company grows, transfers from growth board to the mainboard, or expands overseas, he said, adding that bonuses are often paid for completing various transactions.

"Institutional investors don't really mind paying for performance," he said.

"Fairness and equality is not about the absolute quantum. It's about the disjoint between performance and pay, the disjoint between the pay of certain individuals versus other individuals, and the disjoint between the treatment of management and the treatment of minority shareholders."

Yesterday, discussions at the conference covered topics such as the impact of the latest code of corporate governance on Singapore companies, and on boardroom tussles between directors and a strong CEO.

On the latter, Singapore Exchange CEO Magnus Bocker said companies with a strong CEO making all the decisions should disclose that information to shareholders.

If the board is split and the conflict becomes public, the management needs to be open internally about the conflict, and help staff explain the situation to their clients, he said.

He added that time contracts for CEOs are gaining prevalence among large companies and will make it easier for boards to deal with these conflicts.

KPMG Singapore managing partner Tham Sai Choy, meanwhile, said it is desirable to have strong personalities running companies.

"If I were on the board, I would worry if the person is not ... coming up with ideas, giving the board real work to do," he said. Auditors are often caught between CEOs who are fully immersed in the business, who spot opportunities, but get held back by over-cautious boards, he said.

Kim Teo, CEO of Boardroom Limited, said that the risks of strong CEOs embarking on value-destroying projects can be mitigated by strong CFOs, chief operating officers, independent directors and independent research.

More frequent interaction between boards and management will also build trust and prevent conflicts from boiling over, he said.