By Mak Yuen Teen

Two years ago, I published an article on this website about how Jobs Support Scheme (JSS) payouts introduced by the government during Covid and other government grants   contributed to increases in the remuneration of directors in some companies.

For example, at Old Chang Kee, these grants helped boost the amounts paid to directors to S$5.5 million in FY2021, nearly double the amount in FY2020.  The company said that its “Remuneration Committee (RC) considered it unnecessary to exclude government grants, as the Company had made use of government support measures to continue maintaining staff morale, including paying year-end bonuses, sustained employees’ jobs, and had increased or maintained staff salaries during FY2021. The outsized company performance was not solely due to government support measures. It was also due to other initiatives to improve profitability, including growth in new non-retail revenue streams, and proactive cost containment measures across all departments.”

The fact is that increases in government grants, including from JSS, contributed S$6 million to a S$8.1 million increase in the company’s profit before tax for FY2021. Meanwhile, total salaries and bonuses (excluding amounts paid to directors) fell by nearly 15% and total CPF contributions by 23%, suggesting that ordinary employees had faced job and/or salary cuts.

The RC of Old Chang Kee added that it “has reviewed the bonuses for the Executive Directors. Performance bonuses are based on the service agreements signed with the Executive Directors, which included a percentage of profit sharing based on the adjusted profit before tax as elaborated above”.

The intention of the JSS was to offset local employees’ wages and help protect their jobs during that period of economic uncertainty caused by the pandemic, not increase directors’ remuneration.

Unfortunately, too many companies link directors’ remuneration to profits without considering whether certain adjustments should be made to profits, such as government grants and fair value gains or losses from revaluations of investment properties.

However, it may be hard to beat OKP Holdings (OKP), which has somehow managed to provide a windfall for directors from a tragedy for some its employees.

In May 2021, Or Kim Peow  Contractors (OKPC) , a wholly-owned subsidiary of OKP, was fined $1 million for failing to take reasonable measures to ensure the safety of its workers. This was after one worker was killed and 10 others were injured when a portion of the viaduct from Tampines Expressway (TPE) to the PIE and Upper Changi Road East being constructed by  OKPC collapsed. The project director was sentenced to 13 months’ jail and the project engineer got 11 months. The group managing director, Mr Or Toh Wat, was given a discharge not amounting to an acquittal in court for his three charges in relation to the collapse.

OKPC  subsequently sued the consultancy firm CGP Consultants and was awarded $43.8 million in March 2023.

For the half year ended 30 June 2023 (1H2023), OKP’s gross profit decreased by 58.6% or $2.9 million, from $5.0 million for 1H2022 to $2.1 million for 1H2023. Gross profit margin fell from 9.3% to 2.9%.

Profit before income tax increased by $37.2 million or 2098.6%, from $1.7 million for 1H2022 to $38.9 million for 1H2023. The increase was due mainly to the increase in other gains (net) of $44.1 million or 4395.1%, which was partially offset by (a) the decrease in gross profit of $2.9 million, (b) the increase in administrative expenses of $3.5 million, and (c) the increase in finance expenses of $0.4 million, and (d) the decrease in share of profit of associated companies and joint ventures of $0.1 million.

The increase in other gains (net) was mainly due to:(a) the increase in interest income by $0.4 million resulting from higher interest rate from bank deposits; and (b) “the arbitral award of $43.8 million in relation to the Contract 449A worksite incident”.

The increase in administrative expenses of $3.5 million or 90.8%, from $3.9 million for 1H2022 to $7.4 million for 1H2023, was largely attributable to (a) increase in employee compensation due to salary adjustment and (b) higher directors’ remuneration (including profit sharing) accrued as a result of the higher profit generated by the Group for 1H2023.

The remuneration of directors of OKP trebled from $1.2 million to $3.6 million even though OKP’s operating profitability had worsened for H12023 compared to H12022. The large increase in remuneration of the directors resulted from the subsidiary winning the lawsuit against its contractors for the accident –  and for which the courts had found its subsidiary guilty of failing to take reasonable measures to ensure the safety of its workers, resulting in a fine for the subsidiary, and two of its employees being sent to jail.

What is even more concerning is that the group managing director of OKP, who was given a discharge not amounting to an acquittal for his three charges, is one of the six executive directors who may have benefitted from the increase in remuneration.

OKP’s remuneration committee (RC) comprised three independent directors, Mr Nirumalan s/o V Kanapathi Pillai, who is the Chairman, and  Dr John Chen and Mr Tan Boen Eng.  Did the RC not think that it is totally inappropriate for the executive directors to benefit financially from an arbitral award resulting from an accident that killed and injured its employees and for which the company was culpable?

I believe the executive directors should forfeit the increased remuneration, and if their previous remuneration had not already being reduced for the accident, they should take a further haircut.

The arbitral award is only a “gain” or “profit” in cold accounting terms.  It is a “loss” to the employees who were killed or injured, and their families. A responsible use of the award could include further compensating those affected by the accident and their families, and improving welfare and safety of its employees – but certainly not boosting the remuneration of directors.

In the questions sent by SIAS  in April 2023 ahead of the company’s AGM,  one of the questions was: “Would the group be making goodwill payments to the victims of the accident?”And what was the company’s response? “The Group had provided the affected workers with the necessary assistance and support.” It does not sound like there would be goodwill payments to the victims of the accident from the award.