Director Fees, Bonuses & Remuneration in Singapore: What You Need to Know

When it comes to running a company, director compensation is more than just a pay package—it reflects the company’s approach to corporate governance, performance, and transparency. In Singapore, understanding the legal framework surrounding director fees, bonuses, and remuneration is essential to ensure that directors are fairly compensated while maintaining accountability to shareholders.

Director compensation can take various forms, including fixed fees for non-executive directors, performance-based bonuses for executive directors, and comprehensive remuneration packages. Let’s break down the legal considerations and best practices for handling director compensation in Singapore.

1. Director Fees: Fixed Payments for Board Services

Director fees are typically fixed amounts paid to directors for their time and effort in guiding the company. Non-executive directors, who do not manage the day-to-day operations of the company, usually receive these payments as compensation for their oversight and strategic advice.

Legal Framework:

• Shareholder Approval: Under Section 169 of the Companies Act 1967, any payment of director fees must be approved by shareholders at a general meeting. This requirement ensures transparency and prevents directors from unilaterally deciding their own compensation.
• Disclosure: According to Section 164, director fees must be clearly disclosed in the company’s financial statements, allowing shareholders to see how much directors are paid.

Best Practices:

• Ensure that director fees are competitive but reasonable, in line with industry benchmarks.
• Provide clear disclosures in the company’s annual report to foster trust with shareholders and regulators.

2. Bonuses: Rewarding Performance

Bonuses are often used as performance-based incentives for executive directors who are responsible for achieving the company’s strategic goals. Unlike fixed fees, bonuses are directly tied to the company’s financial success or the director’s performance.

Legal Framework:

• Fiduciary Duties: Under Section 157 of the Companies Act, directors must act in the best interests of the company. Bonuses that encourage reckless risk-taking or short-term gains at the expense of long-term stability could breach this fiduciary duty.
• Shareholder Approval: If bonuses are particularly large or extraordinary, they may also require shareholder approval under Section 169.

Best Practices:

• Structure bonuses based on long-term goals, linking them to performance metrics that reflect the company’s sustained growth.
• Consider adding clawback provisions to bonus contracts, allowing the company to recover bonuses if financial statements are restated or misconduct is discovered.

3. Comprehensive Remuneration: Aligning Pay with Performance

For executive directors, remuneration packages are often more complex, including not just fees and bonuses, but also benefits like stock options, healthcare, and pensions. This ensures that directors have a vested interest in the company’s long-term success.

Legal Framework:

• Disclosure Requirements: Section 164 of the Companies Act requires companies to disclose the total remuneration of each director in their financial statements. This ensures transparency and allows shareholders to assess whether the remuneration is appropriate for the company’s performance.
• Conflicts of Interest: Directors are required under Section 156 to disclose any conflicts of interest, including when it comes to setting their own remuneration.

Best Practices:

• Tie long-term incentives, such as stock options, to key performance indicators that reflect the company’s long-term strategy.
• Ensure that executive remuneration is determined by an independent Remuneration Committee, to avoid conflicts of interest and ensure fairness.

4. The Role of a Remuneration Committee

For publicly listed companies, forming a Remuneration Committee to oversee director pay is not just a good governance practice—it’s a regulatory requirement under the Singapore Code of Corporate Governance. This committee ensures that executive pay aligns with the company’s performance and shareholder expectations.

Best Practices:

• The Remuneration Committee should consist of independent directors to maintain objectivity.
• Regularly review director remuneration packages to ensure they remain competitive while reflecting the company’s financial health and long-term goals.

Conclusion: Striking the Right Balance

Director fees, bonuses, and remuneration play a key role in how a company rewards and incentivizes its leadership. Singapore’s legal framework ensures that this compensation is subject to shareholder approval, disclosure, and fair governance. By following these legal requirements and adopting best practices, companies can ensure that their directors are compensated appropriately while maintaining accountability to their shareholders.

If your company needs guidance on structuring director remuneration or ensuring compliance with Singapore’s legal requirements, our law firm offers expert counsel tailored to your specific needs.

Contact us today to ensure your director compensation strategy is aligned with legal best practices and your corporate goals.