Monday, March 30, 2009

BTO: $29.86m accrued bonus over 3 yrs for CapLand CEO

Business Times - 25 Mar 2009

$29.86m accrued bonus over 3 yrs for CapLand CEO

Actual take-home amount may differ as clawback kicks in for bad years



DEVELOPER CapitaLand's chief executive officer Liew Mun Leong was awarded a performance-based bonus of $2.98 million last year, bringing the total awarded to $29.86 million for three record profit years from 2006 to 2008.


But this does not mean that he gets to take home all the money as accrued bonuses in his account are subject to clawbacks during bad years for the group.


The bonus awards for 2006 and 2007 were $6.36 million and $20.52 million respectively.


The three years from 2006 to 2008 saw net earnings of $1.01 billion, $2.76 billion and $1.26 billion respectively.


The bonuses accrued to Mr Liew were due primarily to an economic value added (EVA) bonus payment, CapitaLand said yesterday in its 2008 summary report.


'Essentially, EVA measures the net operating profit after tax of the group minus the cost of all capital employed,' said CapitaLand.


However, Mr Liew did not get to take home all the money.


The bonuses for CapitaLand's top management are awarded on an accrual basis.


This means that the bonus awarded in a particular year for any individual will be credited into a bonus account, and one-third of the balance in that accumulated account will be paid out each year, provided the account balance is positive. If the group performs poorly in a certain year, the EVA bonus for that year will be negative and will accordingly be subtracted from the individual's accrued bonus account - what the company calls a 'clawback'.


Under this scheme, CapitaLand said in its 2007 annual report that Mr Liew was paid $5.35 million from his bonus account, which was paid in respect of the 2006 financial year.


But to facilitate the disclosure of bonuses awarded for the performance of the financial year immediately ended, the group said that it will, with effect from 2008, disclose bonus figures based on an accrual basis.


Therefore, the bonus disclosed in the 2008 summary report reflects the accrued bonus awarded for the performance of the financial year ended Dec 31, 2008.


For Mr Liew, this means that from 2008 onwards, CapitaLand will not report what he is paid each year.


Rather, the reports will state the amount the company awards to him each year on an accrual basis. This is the sum that will then be put into the bonus account.


'So for 2007, I have not been paid $20.5 million - it is the account accrued to me,' Mr Liew explained to reporters yesterday.


Mr Liew was also paid a basic salary of $1.15 million for 2007 and $1.2 million for 2008.


The pay-for-performance EVA scheme under CapitaLand's bonus plan for its top management was adopted by the group when it was formed in 2000.


While the sum of $20.52 million might seem very high - it could very well be the highest bonus amount awarded to a chief executive of any Singapore-listed company - Mr Liew said that if you consider it as a percentage of net profit, his bonus in 2007 was the smallest among the 10 biggest companies listed on the Singapore Exchange (SGX).


Based on CapitaLand's net profit of $2.76 billion for 2007, Mr Liew's bonus that year works out to 0.74 per cent of the company's earnings, he said.


By contrast, the average bonuses drawn for the 2007 financial year by the chief executives of the 10 largest companies listed on SGX came to 3.9 per cent, Mr Liew said.


He also added that the EVA system means that his bonus account will be hit during years when the group EVA performs poorly.


In 2003, for example, his accrued bonus account saw a subtraction, Mr Liew said.


This could happen again in the coming years as the economy slows, he said.

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