SINGAPORE (June 24): Last week, we ran a Special Report on CEO pay in both Malaysia and Singapore. This week, we have sub-divided the data into three main segments — banks, family-owned businesses and government-linked companies (GLCs).
The banks are in a category of their own because of their size — they are the largest companies by market capitalisation in Singapore — and their importance to their respective economies. In addition, banks such as United Overseas Bank (UOB), Malayan Banking and CIMB Group Holdings have regionalised within Asean. UOB, in particular, has made inroads into the Mekong Delta region and is on its way to owning as much as 3.5% of the market share in loans in Thailand.
Family-owned companies have been, and still are, important to both the Singapore and Malaysia economies. Some family-owned companies are among the oldest firms in their respective countries. Both Oversea-Chinese Banking Corp (OCBC) and UOB — the oldest and second-oldest local bank respectively — still count their founding families as major shareholders despite having attracted institutional shareholders. City Developments (CDL) is one of the oldest listed developers in Singapore.
Singapore family-owned blue-chip companies, including CDL, Frasers Property and UOB, reward their shareholders — including the controlling shareholders — through dividends.
During Singapore’s formative years, its GLCs played a large part in attracting foreign direct investments to the island, and in building up core sectors. Among them, Keppel Corp — once the world’s largest builder of jack-up rigs — continues to look for new avenues of growth. Singapore Airlines is a global brand and among the world’s best airlines. Another Singapore Inc representative, CapitaLand, is among the world’s largest property fund managers. Singapore Technologies Engineering, a home-grown defence and technology company, is viewed as a must-have in defensive portfolios.
Dividends best form of compensation for banks
Compared with the overall mean and median of 80 companies, the CEOs of both Malaysia and Singapore banks have significantly lower compensation when measured against profit after tax and minority interest (Patmi) and market capitalisation. The relatively modest CEO compensation is probably due to superior corporate governance, the presence of institutional shareholders, which adds a layer of protection for minority shareholders, as well as robust banking regulations. Over and above these factors, Singapore is an international private banking, wealth management and fintech hub.
Also, as in the case of UOB, the founding family continues to be the controlling shareholder and hence returns are likely to be in the form of dividends. In FY2018, UOB had a dividend payout ratio of 50% and gave shareholders $1.20 per share in dividends. The family of UOB CEO Wee Ee Cheong holds 18.53% of UOB, or 308.7 million shares.
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Similarly, OCBC’s founding family is its controlling shareholder, and the family members are among its board members. In FY2019, OCBC had a dividend payout ratio of 40%, with dividends of 43 cents per share. Shareholders opting for scrip dividends were given generous discounts of 10%.
Overall, though, for the 12 months to May 31, Singapore banks had negative total shareholders’ returns owing to share price declines, while Malaysian banks had positive total shareholders’ returns.
Family-owned blue chips in Malaysia rewarded CEOs well
CEOs of family-controlled blue chips in Malaysia were exceedingly well rewarded in FY2018. These CEOs, often a member of the controlling family, were paid almost twice as much when measured against Patmi and market capitalisation, than CEOs of all other segments. Some market observers have pointed out that Malaysian CEOs opted to pay themselves through directors’ fees rather than dividends. Market observers point out that this high pay prioritises self interest over that of minority interests.
For instance, Lim Kok Thay, who owns and runs Genting, is the highest-paid CEO in Malaysia and Singapore, with his compensation amounting to 13.4% of Genting’s FY2018 Patmi. Lim reportedly announced on June 19 that he would take a 20% pay cut to offset the effect of heavy gaming taxes, which have weighed on the group’s financial performance, according to theedgemarkets.com. Meanwhile, Vincent Tan of Berjaya Corp paid himself RM10.5 million even though the company made a loss in FY2018 due to impairment of various assets and an unfavourable foreign exchange impact.
Singapore family-owned blue-chips paid their CEOs — usually members of the family — less than other segments. This could be attributed to Singapore’s more robust corporate governance practices where CEO pay is tied to performance, and the preference of these companies to reward both controlling and independent shareholders through dividends. For instance, CDL paid a dividend of 20 cents per share in FY2018, representing a payout ratio of 33%. CDL’s chairman is Kwek Leng Beng, who holds a 48.62% stake, or 442.13 million shares, in the company.
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CEOs of Singapore GLCs well compensated
Singapore GLCs performed well and enjoyed positive shareholder returns in 2018 compared with other sectors. No surprise, then, that their CEOs were relatively better compensated for their performance.
CEO pay for Malaysian GLCs was significantly below the average when measured against Patmi and market cap. The lower compensation of CEOs of Malaysian GLCs was accompanied by negative shareholder returns over the year. However, this also implies that Malaysian GLCs — unlike family-controlled companies — afford minority shareholders greater protection. Some CEOs of Malaysian GLCs were paid well despite a decline in earnings. It is possible some of these declines were due to one-off expenses for non-cash, technical items such as impairments or write-offs.
As such, retail investors and minority shareholders should consider investing in Singapore banks and selected family-controlled blue chips at points in the market cycle when they offer value.
