Our ownership ethos puts the institution above the individual, emphasises long term over short term, and aligns employee and shareholder interests over economic cycles.
Our compensation framework fosters a high performing and responsible culture where our employees think and act as owners, sharing gains and pains alongside our shareholder. It balances short term performance and long term value creation.
Our base salaries are benchmarked against relevant markets where we compete for talent. Short term bonuses are driven by annual targets. Returns above our risk-adjusted hurdle determine our Wealth Added (WA) incentive pool, while negative returns determine our clawback pool. Longer term incentives are deferred up to 12 years and subject to market risks and clawbacks, to account for sustainability of returns over market cycles.
Deferrals and clawbacks have been integral to our incentive plans since 2003. We have exercised bonus clawbacks seven times in the last decade, including three carry-forward clawbacks when deferred incentives were insufficient to clear the clawback pool.
Annual Cash Bonuses – Our Short Term Incentive
Annual cash bonuses are driven by company-wide, team and individual performance, and capped within budgeted limits. One annual performance target requires our three-year Total Shareholder Return (TSR) to exceed our three-year cost of long term debt.
Apart from financial targets, our “Make-A-Difference” (MAD) Programme rewards employees for achieving non-financial goals targeted at strengthening the institution, contributing to our community, and taking care of our families and ourselves.
For example, our staff are all trained in Cardiopulmonary Resuscitation (CPR) and the use of Automated External Defibrillators (AEDs) resuscitation protocols as a life skill under our MAD Programme.
WA Bonus Bank – Our Medium Term Incentive
Positive or negative, a portion of our WA incentive pool is distributed into the individual notional WA bonus bank accounts, based on each individual’s performance and relative contributions over a period.
If WA bonus bank balances are positive, senior management receive payouts of no more than a third of their WA bank balances. Payouts are half for mid-level management and two thirds for other staff. The retained balances remain at risk of clawbacks in the future should returns be negative.
Co-ownership Grants – Our Long Term Incentive
Our staff may be awarded co-investment grants with performance or time-based vesting conditions. These units grow or decline in value with our yearly TSRs, reinforcing the ownership culture in our team. Co-investment units lapse after 12 years.
Part of our positive WA incentive pool funds the Temasek co-investment (T-Scope) grants with stringent multi-year portfolio performance conditions to trigger a five-year vesting. Another portion is held as a company-wide reserve for three to seven years to be released progressively for time-based co-investment grants. When returns are negative, clawbacks are first taken from this common reserve, before deducting from the deferred bonus banks of our staff.
Our annual operating budget funds limited time-based staff co-investment (S-Scope) grants, which vest over five years, starting in the third year.
Co-ownership Alignment in Practice
Two years ago, we had an accumulated clawback balance carried forward from prior negative WA years. We ended the year 31 March 2015 with a positive WA of S$25.5 billion. The WA incentive pool allowed us to fully clear the clawback balance, and distribute the rest for employee incentives.
For the year ended 31 March 2016, our negative WA of S$44.7 billion means that no new T-Scope units will be awarded. The resultant negative clawback pool will be allocated to individual employees, and deducted from their retained WA bonus bank balances. The remaining negative allocations will be aggregated and carried forward as a company-wide clawback pool to be made good from future years of positive WA.
This framework for sharing gains and the associated risks and pains through market cycles has been tested during the Global Financial Crisis and its aftermath, reaffirming our ownership ethos.
(for year ended 31 March)
WA Incentives of Key Team
Incentives are deferred up to 12 years and subject to market risks and clawbacks.