SGX RegCo Updates – Enhancements to Disclosures on Directors’ Remuneration and Cap on Independent Directors’ Tenure

By Leon Yee and Jennifer Lo

On 11 January 2023, the Singapore Exchange Regulation (“SGX RegCo”) announced the requirement to disclose remuneration details of directors and chief executive officers (“CEOs”) and the imposition of a limit on the tenure of independent directors (“IDs”).

Disclosure on Remuneration Details of Directors and CEOs

Remuneration disclosure is important for companies listed on the Singapore Exchange because it promotes transparency which enables shareholders and investors to assess the value of the company in relation to how much the management is remunerated and thus incentivized in its management of the company.

Currently, Principle 8 of the Code of Corporate Governance (“Code”) provides that a listed issuer must be transparent on its remuneration policies, level and mix of remuneration, the procedure for setting remuneration, and the relationships between remuneration, performance and value creation. Provision 8.1 of the Code recommends that a listed issuer should disclose in its annual report the policy and criteria for setting remuneration, as well as names, amounts and breakdown of remuneration of, among other things, each individual director and the CEO. Compliance with the Principles of the Code, which set out broadly accepted characteristics of good corporate governance, is mandatory. However, the Provisions of the Code, which underpin the Principles, are applied on a comply or explain basis – as a result, majority of companies choose to disclose remuneration in salary bands citing competition and sensitivity concerns.

Following this announcement, for annual reports prepared for financial years ending on or after 31 December 2024, Singapore-listed issuers will be required to disclose the exact amounts and breakdown of remuneration paid to each individual director and the CEO by it and its subsidiaries. Such breakdown must include (in percentage terms) base or fixed salary, variable or performance-related income or bonuses, benefits in kind, stock options granted, share-based incentives and awards, and other long-term incentives. Termination, retirement and post-employment benefits should also be separately disclosed.

It should be noted that disclosures for at least the top 5 key management personnel (not director or CEO) will remain unchanged – issuers should specify the names, amounts and breakdown of remuneration for such key management personnel in bands no wider than S$250,000.

SGX RegCo believes that the increased transparency will enable investors to assess whether the directors and CEO are appropriately incentivised.

Tenure of Independent Directors

The Code of Corporate Governance defines an ID as one who is independent in conduct, character and judgement, and has no relationship with the company, its related companies, substantial shareholder or officers, which could interfere or be reasonably perceived to interfere with his independent judgement. IDs are important to enable an objective check on management.

Prior to 11 January 2023, a two-tier vote mechanism was in place to allow companies to retain long-serving IDs who have served for more than nine years. Long-serving directors could continue to be deemed independent so long as their appointment was approved by all shareholders, and then by all shareholders excluding the directors and the CEO of the issuer, and associates of these directors and CEO.

With effect from 11 January 2023, this two-tier shareholder voting mechanism will be removed, thereby limiting the tenure of IDs to nine years. It should be noted that this does not prevent directors who have served for more than nine years from being re-appointed; they can continue serving as non-independent directors.

To allow companies time to search for new IDs, existing IDs whose tenure exceed the nine-year limit can continue to be deemed independent until the company’s next annual general meeting for the financial year ending on or after 31 December 2023.

As a result of this change, consequential amendments have been made to Rule 210(5) of the SGX Listing Rules (Mainboard) and Rule 406(3)(d) of the SGX Listing Rules (Catalist) to limit the tenure of IDs to nine years.

These changes have been introduced based on recommendations by the Corporate Governance Advisory Committee (CGAC), following a public consultation process which received broad market support. The removal of this two-tier system promotes an infusion of new IDs directors on the board, giving companies an opportunity to inject new skills, experience and knowledge into their boards, and help to ensure board renewal and diversity.

For More Information

If you have any questions about this article, please contact Jennifer Lo and Leon Yee or the attorney in the firm with whom you are regularly in contact.

About Duane Morris & Selvam LLP

Duane Morris & Selvam LLP (DMS) is a joint law venture between international firm Duane Morris LLP (DM) and Singapore-based firm Selvam LLC. DMS runs a unique Latin American-Asian practice out of Singapore, with a team of international lawyers qualified in multiple jurisdictions including Singapore, the US, the UK, Canada, Mexico and Colombia, with substantial experience in international transactions and disputes. DMS also has a wide cooperation network with some of the best Latin American and Asian law firms.

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