| Temasek Review 2011
Compensation Framework
We foster an ownership culture which puts the institution above the individual, emphasises long term over short term, and aligns employee and shareholder interests.
Apart from competitive salaries, we offer performance and time vesting incentives that are subject to the risks and sustainability of returns over market cycles.
Performance incentives are mostly deferred between three and 12 years to promote an ownership culture and long term alignment, especially for senior management.
Annual Target Incentives
Annual target incentives are determined by individual, team or Temasek-wide achievements and medium term Total Shareholder Return (TSR). These are capped within budgeted limits.
Risk-Reward Sharing Incentives
Our incentives for sharing risks and rewards are driven by our returns above an aggregate risk-adjusted returns hurdle. Also known as Wealth Added (WA), this excess return over the risk-adjusted cost of capital determines the size of our staff incentive pool. Should our returns fall below the hurdle, the resultant negative incentive pool will trigger a clawback against deferred bonuses from prior years.
WA Bonus Bank
Positive or negative, a portion of our WA incentive pool is allocated to the notional WA bonus bank account of each employee, based on their individual performance and relative contributions over a period.
If the WA bonus bank balance is positive, senior managers receive payouts of a third or less of their WA bonus bank balances, while junior staff receive up to two thirds as their annual WA bonus payouts. Any remaining bonus bank balances will be at risk of clawbacks in the event of any future negative WA.
Co-investment Unit Grants
Subject to positive WA or other conditions, our staff may be awarded time and/or performance based co-investment units. These units grow or decline in value with Temasek’s TSRs over the years, reinforcing an ownership culture in our team.
Time-based co-investment units have a vesting period of up to 10 years whilst performance-based co-investment units (T-Scope) must meet stringent portfolio performance conditions over a minimum period of three years before vesting begins, and lapse after 12 years.
Risk-Reward Alignment in Practice
With negative WA for two consecutive years ended 31 March 2008 and 2009, “negative bonuses” were allocated to our staff, and no T-Scope units were awarded. This meant clawbacks and the consequent wipe-out of the bonus bank balances for all our staff. As the large negative bonus pool was in excess of the bonus bank balances available, the excess negative bonus pool was carried forward as a common pool to be made good from future positive WA bonus pools.
When our portfolio returned a strong positive WA of S$41.8 billion the following year ended 31 March 2010, we were able to first make good the excess negative bonus pool carried forward, before any allocation for staff incentives. T-Scope units were awarded.
The negative WA of S$8.8 billion for year ended 31 March 2011 means a clawback to be allocated during the year ending 31 March 2012, with no T-Scope awards.
This framework for sharing gains and the associated risks and pains through market cycles reaffirms the principle of ownership and alignment with sustainable long term value, especially for our senior management.
Compensation of Key Team
Wealth Added (WA) in relative dollars
Total Shareholder Return in relative dollars
Salaries & Benefits for the year
Annual cash bonuses for prior year
Paid-out portion of WA Bonus earned for prior year
Deferred portion of WA Bonus earned for prior year, with future clawback risks
Co-investment units at S$1 nominal value each, subject to vesting and other conditions up to 12 years, e.g.:
- a. T-Scope units which lapse if performance conditions are not met;
- b. Restricted units vesting over specified time horizons
Negative WA Bonus clawback against past deferred WA bonuses
Balance of negative WA Bonus carried forward for future clawback
Portion used to make good the balance of negative WA Bonus carried forward from prior year
- 1Relative compensation of key management team which includes CEO, Presidents& Senior Managing Directors, Managing Directors, management Directors, as well as Executive Directors.
- 2No T-Scope units were awarded due to negative WA of the previous year.
We were able to first make good the excess negative bonus pool carried forward, before any allocation for staff incentives.