Understanding 1 Crucial Aspect Of Singapore’s Bank Stocks: Management Remuneration

A widely discussed topic in the world of investing today is corporate governance. As the words suggest, it is the concept of how a company is governed.

Corporate governance is an important topic due to the agency model that many companies have, whereby the owners (shareholders) and managers are separate groups of people.

The separation of the role of owner and manager could result in problems due to the potential conflict of interests between the two parties. For example, shareholders suffer when a company’s business performance is poor, but the managers may still want to be paid a fat salary. Having good corporate governance could help to minimise problems.

There are many facets to the issue of corporate governance and I’m not going to cover them all in this article. What I want to do here is to look at how management – in particular, the chief executive officer – is remunerated.

My focus will be on one of the most important sectors in the Singapore stock market, namely, banking. Collectively, the three big Singapore banks – DBS Group Holdings Ltd (SGX: D05), Oversea-Chinese Banking Corp Limited (SGX: O39), and United Overseas Bank Ltd (SGX: U11) – account for over one-third of our stock market benchmark, the Straits Times Index (SGX: ^STI).

The CEOs of DBS, OCBC, and UOB are Piyush Gupta, Samuel Tsien, and Wee Ee Cheong, respectively. Here’s how their compensation for 2016 is like:

Source: DBS, OCBC, and UOB annual reports

We can see that all three of them have comparable remuneration of around S$8.4 million in 2016. What’s more, the breakdown between salary and other sources of income were also remarkably similar, with all three CEOs having earned a salary of S$1.2 million.

So clearly, there are some industry-standard practices that all three banks are employing when setting the remuneration of their CEOs. Another point worth noting is that the three CEOs also appear to have reasonable remuneration when compared to the size of the banks’ business. For context, DBS, OCBC, and UOB earned profits of S$4.24 billion, S$3.47 billion, and S$3.10 billion, respectively, in 2016.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore has a recommendation for United Overseas Bank and DBS Group.