Last week, CapitaLand revealed that it awarded Mr. Liew Mun Leong with a bonus worth $20.52 million for the year 2007 and a reasonably simplest bonus worth $2.98 million for the year 2008.
The award of CEO Liew Mun Leong for 2007 was a prize for the record profit of the group that reached $2.76 billion during that year. The profits were more than twice from $1.01 billion in 2006, for which Mr. Liew was rewarded with $6.36 million.
CapitaLand stated that the Mr Liew’s bonus last 2007 was due to an economic value added (EVA) reward payment. Basically, EVA is measuring the group’s net operating profit after tax minus the capital costs employed. Last 2007, the developer’s EVA was $2.3 billion, but went down to $660 million last 2008, leading to a smaller reward for Mr Liew.
Probably anticipating several reactions, Mr Liew explained to the media how the bonus worked out. He also explained these bonuses were all awarded based on accrual. This means that the awarded bonus to a person in a year is credited into the bonus account, and only one-third of the gathered account balance will be disbursed every year. When the group unsuccessfully performs in a particular year, that year’s bonus will become negative and will be deducted from the accumulated bonus account of the person, which is called "clawback”. The account of Mr Liew was stricken by a clawback last 2003, and there is always a possibility to occur in the coming years.
It was pointed out by Mr. Liew that his $20.52 million worth of bonus for the year 2007 is working out to 0.74% of the group’s net profit, with a record of $2.76 billion as to that year. However, the average bonuses for the 2007 fiscal year by the several chief executives of the ten major companies on the Singapore Exchange (SGX) arrived a greater 3.9%.
While it is a fact that CapitaLand accumulated record earnings in 2007, everyone should not overlook that CapitaLand took advantage from the robust upturn in property prices during that year, mainly in Singapore, and recognised revaluation increase of almost $1.1 billion from the group’s investment portfolio. This is the reason why the group’s net profit, including such gains, increased 172.5% in 2007, while the gross profit ascended by a smaller 45.3%.
If CapitaLand will compare the percentage of its Chief Executive Officer’s bonus to net profits to the ten major companies included on SGX may seems to be absolutely fair. Most of these major companies are not really in real estate and their bottom lines were not increase by revaluation profits in the 2007 property growth, which improved the developers’ earnings. There is a counter-argument that if fair values increase, they also decrease.
CapitaLand really deserves the credit of explaining how CEOs are paid. The company demonstrated time and they are always ahead in terms of its accountability to shareholders. It has proven itself to say that the bonus plan is regularly reviewed to make sure that the measures are relevant and targets are in harmony with market outlooks. Taking changes on revaluation from the equation in terms of deriving these bonuses is always subject to scrutiny.