By Mak Yuen Teen

On 8 April, Business Times published an article with the headline “CDL group CEO Sherman Kwek gives up long-term incentive of S$1.35m; total compensation for FY2024 down 15.4%”. The headline and report do not quite capture what happened to the remuneration of Mr Sherman Kwek (SK) in FY2024. There are also nuances in CDL’s remuneration policies and issues in its remuneration disclosures that CDL shareholders should be aware of.

In CDL’s annual report that was released on 8 April, the remuneration table shows that SK was paid S$2,974,065.45 for FY2024. It also shows under the column “LTI” (for Long-Term Incentive) that SK has “Volunteered to forgo” and the footnote to the table states: “Mr Sherman Kwek, the Group CEO, has voluntarily elected to forgo his 2024 LTI grant of $1.35 million. The NRC acknowledged his decision and expressed appreciation for his leadership and dedication to the Group”.

The LTI was introduced in FY2022.  He was granted a LTI of S$1.35 million that year and the same amount in FY2023. It is therefore evident that there are no performance conditions for the LTI grant since it is the same amount each year. Companies using LTIs often have conditions for grants and conditions for vesting, but not in the case of CDL which only has conditions for vesting (more on that later).

For FY2022 and FY2023, SK’s LTI grant was not included in his total remuneration shown in the remuneration table. Rather, it was disclosed as a footnote to the remuneration table. For example, for FY2023, the remuneration table shows his total remuneration was S$3,515,826 comprising fixed salary (inclusive of AWS), STI or short-term incentive in the form of annual variable bonus, board/committee fees, and other benefits.  The footnote for the table states that the LTI grant of S$1.35 million is in addition to the remuneration in the remuneration table. It also states that the final payment to be vested is contingent on the achievement of pre-determined targets over a three-year performance period, which will range from 0% to 200% of the award.

Therefore, for FY2024, SK took a pay cut of about S$541,761 and also “gave up” a S$1.35 million LTI grant. Rather than applauding SK for his “generosity” in giving up his LTI grant, CDL shareholders should ask the NRC to provide more information about the LTI grants given in FY2022 and FY2023 and whether they are likely to vest and if so, how much, bearing in mind that he could get as much as 200% of the LTI grants given to him in FY2022 and FY2023. Given how poorly CDL has done from a financial standpoint since those grants were made, it may be highly questionable if those grants vest (the clock is ticking as much as the three-year performance period for the FY2022 grant has lapsed). If performance conditions are stretched targets, SK may be giving up something in FY2024 that may not vest anyway, unless CDL suddenly finds its mojo.

Like most other companies listed on SGX, CDL’s disclosures of its remuneration policies leave much to be desired. For example, it states: “LTI payments are not guaranteed and are subject to Management achieving the performance conditions based on Board-approved targets and strategy. LTI payment will be made at the end of the three-year assessment period if performance conditions are met.”  With regards to the different remuneration components, it adds: “The RC also reviewed and approved the Company’s balanced scorecard for 2024 which included the performance targets set out in the GET (Growth, Enhancement and Transformation) strategy to be achieved by the Company based on its short and long-term objectives, and includes non-financial measures such as on risk management and environment, social and governance issues which are similarly cascaded down to the employees of various business units”. Pardon the pun, but I still do not GET what are the specific performance measures used, not to mention targets, including for the vesting of the LTI. Shareholders should ask for more transparency on this at the AGM.

Finally, there are a few other interesting observations from CDL’s remuneration policy. First, it still includes an Annual Wage Supplement (AWS) in the Fixed Compensation which is not linked directly to performance. AWS is a legacy remuneration component that many companies have done away with. It is fixed remuneration pretending to be discretionary. Has CDL ever not paid the AWS?

Second, CDL pays board/board committee fees to its Executive Chairman, Mr Kwek Leng Beng (KLB), and SK. While some companies do the same, many companies do not pay additional fees to executive directors for serving on the board or board committees. After getting a few million in remuneration as part of their executive remuneration, do they really need to be paid those few extra couple of hundred thousand more for serving on the board and board committees? It is not a big amount, relatively speaking, but it may give the impression that the EDs want every extra dollar they can get.

Third, the LTI for SK is in the form of cash, not shares as is the case for most other companies that use them. CDL states: “Being a cash-based award, the LTI is not dilutive to current shareholders”. KLB does not get any LTI. His relatively large stake in the company would already provide reasonable alignment with long-term shareholder interests. However, this is not the case with SK, who has a negligible stake. The fact that CDL chose to use a cash-based award for its LTI is likely because CDL is a family-controlled business with many different family shareholders. Family shareholders may not want their stakes to be diluted and SK’s stake to be increased over time.

In conclusion, I believe CDL shareholders should not only ask questions about the re-election of the directors and the re-appointment of the external auditor at the AGM which I had suggested in my earlier article. They should also ask about the remuneration policy and particularly about the LTI grants made in FY2022 and FY2023.

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The author is a corporate governance advocate. He does not own shares in CDL. The views in this article are his personal views.