On 28 April 2023, Rex International will be holding its AGM by electronic means. One of the resolutions for the AGM (resolution 5) is to approve the payment of additional remuneration of S$675,000 to non-executive directors for the financial year ended 31 December 2022.
This is on top of the payment of additional directors’ fees of S$95,830 (resolution 4) and the directors’ fees of S$621,383 which were pre-approved at last year’s AGM.
Resolution 3 seeks shareholders’ approval for the payment of directors’ fees of S$807,433 for the current financial year ending 31 December 2023.
Explanatory Note (3) in the Notice of AGM states:
“The additional remuneration of S$675,000/- is a performance bonus for the financial year ended 1 December 2022 and is made pursuant to the achievement of the performance targets, set and approved by the Remuneration Committee and the Board. Resolution 5 if passed, each Non-Executive Director, Mr Sin Boon Ann, Dr Christopher Atkinson, Ms Mae Heng, Mr John d’Abo and Dr Mathias Lidgren, will be paid an equal amount of S$135,000 in 2023.”
The Remuneration Committee (RC) is chaired by Mr Sin Boon Ann, the lead independent director, with other members being Mr Dan Broström, the Executive Chairman, and Mr John d’Abo, an independent director (ID).
The inclusion of the Executive Chairman in the RC is a departure from the Singapore Code of Corporate Governance. The company’s explanation for this departure is as follows: “The RC does not comprise solely of Non-Executive Directors following the appointment of Mr Dan Broström, the Executive Chairman, as a member of the RC. Taking into account that the Executive Chairman would be able to provide relevant input and guidance to the RC, given his familiarity with the Group’s activities as well as industry and market practices (including remuneration packages which are in line with the current market standards and commensurate with the respective job scope and responsibilities of executives) in jurisdictions where the Group operates, the NC had recommended his appointment to the Board. The Board opined that as the RC continued to have majority representation of independent directors, the independent directors collectively, would have the decisive vote in relation to executive remuneration matters. Furthermore, retaining an RC member who is in an executive position will not lead to a conflict of interest or impede the independence of the RC as no Director or member of the RC is allowed to participate in the deliberation, and has to abstain from voting on any resolution, relating to his own remuneration or that of employees related to him. Based on the foregoing, the Board had approved Mr Dan Broström’s appointment as a member of the RC.”
Under the section “Performance Criteria for Remuneration” in the company’s Annual Report 22, it states: “The Independent and Non-Independent Non-Executive Directors receive Directors’ fees based on their responsibilities, effort and time spent. The Directors’ fees are recommended by the RC and endorsed by the Board for approval by the shareholders of the Company at the AGM.”
Under the section of “Disclosure of Remuneration”, it states: “Directors have remuneration packages consisting of basic retainer fees as directors and fees for directorship in subsidiaries, with additional fees for attendance and serving on Board Committees.”
The same statements were made in the Annual Report 2021.
In the corporate governance report, there is no mention of any performance bonus payable to the Non-Executive Directors (NEDs).
The resolution to approve the performance bonus states that the performance targets were set and approved by the RC. How can the RC members, which include two IDs who are recipients of the performance bonus, avoid conflicts in setting and approving the performance targets, which will determine each of their performance bonus? What are these performance targets and when were they set?
Three of the NEDs receiving the performance bonuses were only appointed in May 2022. Yet the company has determined that they should be paid the same performance bonus. For executives, performance bonuses are usually prorated for those who join partway through a year.
While NEDs should be fairly remunerated, the remuneration should be appropriate. Special circumstances which require more time commitment from NEDs may warrant the payment of additional remuneration but this should be done in a transparent and appropriate manner. Otherwise, it could create a perception that NEDs are paid additional remuneration to support corporate actions that benefit major shareholders or management but not the company.
Paying performance bonuses is generally inappropriate for NEDs, especially IDs, as it can compromise their independence. In this case, there is no transparency regarding when the performance targets were set and what they are, and how the RC members could have avoided conflict of interest in setting them.
What makes it worse is that the profit for FY2022 had collapsed from US$78.939 million to just US$353,000 – and the company only avoided a loss due to a tax credit of US$6.961 million. The company’s share price declined from S0.3082 on 3 January 2022 to S$0.2150 on 30 December 2022, and closed S$0.1860 on 17 April 2023.
In my view, minority shareholders and SGX Regco should query the company about the payment of performance bonuses to the NEDs and press for more transparency.
Unfortunately, minority shareholders of SGX-listed companies will generally just have to accept whatever issuers decide to do, and therefore it is unsurprising we continue to see declining investor interest in our market.
