Current practices and next steps for traded companies
Across Asia, corporate governance concerns continue to push companies to improve how they are managed, how key decisions are made, and how stakeholder concerns are addressed. At the forefront of these efforts are boards of directors, who are increasingly challenged to balance the sometimes competing interests of stakeholders while also complying with the current rigorous regulatory environment. As the visibility, required competencies and workloads of outside directors increase, director pay levels are also rising. More and more, nominating and remuneration committees are asking not just how much directors should be paid, but also how that pay should be delivered.
More and more, remuneration committees are asking not just how much directors should be paid, but also how that pay should be delivered.
To assess how boards are currently structured and remunerated, Willis Towers Watson analysed the practices of the top 50 publicly traded companies (by market capitalisation) in the following groups: local Chinese companies listed in Hong Kong (China H-share companies), local Chinese companies listed in the U.S. (China N-share companies), local Hong Kong companies, local Indian companies, local Malaysian companies and local Singapore companies. We used the data from 2019 annual reports for analysis.
The board structure of the top public companies is similar across these markets with an average board size of 10 members. Figure 1 shows that Hong Kong companies have the most directors (12 on average) while China N-share companies have the fewest (8 on average). In Hong Kong, which traditionally has had larger boards, the typical size seems to be slowly declining; the prevalence of very large boards (more than 18 members) has declined over the past five years.
In none of the markets we reviewed is the majority practice to combine the CEO and chair role. It is most commonly combined for China N-share companies, but even then, only 44% of those companies combine the roles, while 42% have an executive (non-CEO) chair. For China H-share and local Hong Kong companies, the most common practice is to have an executive chair in place (63% and 48%, respectively). Half (50%) of Singapore companies have an independent non-executive chair, but that approach is relatively rare in the other markets we analysed (Figure 2).
Singapore board members receive (at median) board retainer fees of US$53,000 while Hong Kong and Malaysia board members receive significantly less (US$39,000 and US$35,000, respectively). Additionally, Singapore’s committee chairs receive a 26% higher committee retainer fee (US$26,000) compared with their Hong Kong counterparts (US$21,000) while the committee member receives a similar committee retainer fee (US$15,000). The only exception is for the risk committee where Hong Kong pays 51% more to both the committee chair and committee members (US$32,000 and US$26,000, respectively) than their Singapore counterparts (US$26,000 and US$15,000, respectively). Malaysia committee retainers significantly trail both Hong Kong and Singapore; comparing Singapore’s committee chair and committee members against similar Malaysia roles, the difference is about two times higher on an overall basis (197%). Malaysia committee chair and committee member retainers equal US$9,000 and US$5,000, respectively.
In addition to board retainers, it’s also very common in India, Malaysia and Singapore to pay meeting fees to board directors. Meeting fees are rare for Hong Kong and China companies: Of the 150 such companies in this study, only four disclosed paying meeting fees. It is more common for Malaysia and Singapore companies (78% and 65%, respectively) to pay a common meeting fee for both board and committee meetings. In other markets, meeting fees usually differ between the board and committees, and the chair and member role may receive different meeting fees.
Singapore companies tend to pay the highest meeting fees (a median of US$1,460 per meeting) while India and Malaysia companies pay US$970 and US$480 per meeting, respectively.
While their per-meeting fees are low, Malaysia companies have the most meetings. Figure 4 shows the total meeting fees received by directors in a typical year based on the average number of meetings.
| Location | Average no. of board meetings (per year)
[A] |
Average no. of committee meetings (per year)
[B] |
Meeting fees, median (US$ per meeting)
[C] |
Total meeting fees in a typical year (US$)
[(A+B)*C] |
|---|---|---|---|---|
| India | 8 | 5 | $970 | $12,610 |
| Malaysia | 9 | 6 | $480 | $7,200 |
| Singapore | 6 | 4 | $1,460 | $14,600 |
A pay element in India not commonly paid in other markets is short-term incentives. These payments are most commonly formulaic (61% of companies) but can be fixed. Formula-based payments are typically based on a percentage of company profits for the financial year or based on the director’s contributions to the board. For the fixed payment approach, an amount is pre-established by the board of directors subject to achieving specific financial or other goals. For Indian companies, 84% limit the maximum fees payable to individual directors. Out of those companies, 76% limit commissions only while 24% limit total remuneration. As stated in Section 197 of the Companies Act, 2013, for Indian companies, the total commission paid to all non-executive directors (NEDs) shall not exceed 1% of the company’s annual net profit.
The practice of providing board members with equity grants is uncommon in the Asian markets we reviewed. Figure 5 shows that 12% of Singapore companies granted directors equity last year while 10% of Hong Kong companies did so. In China, only 6% of N-share companies and 2% of H-share companies granted directors equity. In India and Malaysia, none of the companies provided equity grants.
As shown on Figure 6, Singapore’s NEDs are paid the highest with their remuneration totalling US$75,000 per annum, at median. This is closely followed by Hong Kong independent non-executive director remuneration at US$64,000. The other markets trail these two by at least US$17,000, with China H-share remuneration at US$47,000, Malaysia at US$43,000, India at US$42,000 (including US$31 in incentives) and China N-share at US$34,000.
Singapore board chairs typically receive total board retainer fees of US$131,000 per annum (at median) compared with Hong Kong and Malaysian companies (US$83,000 and US$76,000, respectively, at median).
Looking at total remuneration (inclusive of all retainers and fees as well as equity grants) for non-executive board chair, at median, Hong Kong board chairs are paid the highest with remuneration totaling US$242,000 at median, while Singapore board chairs come in second with US$146,000 in total remuneration.
Comparing NED board chair remuneration against non-chair NED remuneration, Hong Kong companies have the widest gap: At the average company, the board chair is paid 3.8 times more than a regular NED. This is followed by Malaysia and Singapore at 2.4 times and 3.1 times higher, respectively. India has the smallest gap between a board chair and a regular NED at 1.6 times higher. Most board chairs in China also perform as the CEO or act as an executive chair; hence, they are excluded from this analysis.
In India and a handful of other companies across Asia, we see incentives being paid to outside directors based on the achievement of financial goals. This practice is very rare globally, as the role of the board is to monitor management on behalf of shareholders and other stakeholders. Having pay tied to the achievement of goals — especially short-term goals — may distort that monitoring role and align outsider directors with management.
Having pay tied to the achievement of goals may distort that monitoring role and align outsider directors with management.
As noted, incentive payments are very rare outside India. Corporate governance standards in most markets tend to reflect a belief that outside board members should be monitors of management on behalf of shareholders and therefore should not be financially aligned with management. This concern is particularly true given the increasing prominence of audit committees in reviewing accounting practices and approving company reported financial results.
Most European companies tend not to deliver board remuneration in the form of company stock (or tend to make it a relatively small component of overall pay). In some other markets, including notably the U.S. and the U.K., the use of stock awards (typically granted with stringent long-term ownership requirements) is an important part of outside board member remuneration, as it is seen to align board members’ interests with shareholders’ long-term interests. Even in markets where stock awards are common, the use of options is generally uncommon, with most equity awards in the form of stock or restricted stock that vests within 12 months. The use of full-value shares is generally perceived to provide a better long-term alignment with shareholders than options, which have often been accused of incentivising short-term decision making.
While there are some demonstrated differences in how pay is and can be delivered to outside board members, some common objectives should be kept in mind when designing the pay packages for outside or non-executive board members.
