Compensation Framework

Annual Report 2010

A major cornerstone of our institution building is the principle of sharing gains and pains alongside our shareholder.

We foster an ownership mindset through an incentive philosophy which puts the institution before the individual, emphasises long term over short term, and aligns employee and shareholder interests.

Our compensation system offers competitive base salaries and an incentive plan which is subject to performance hurdles and time horizons to account for risks over market cycles and the sustainability of returns.

The incentive plan includes annual cash bonuses linked to individual, unit or company annual targets, and risk-reward sharing incentives over the longer term, linked to Wealth Added (WA) or Total Shareholder Return (TSR).

Senior management have the bulk of their performance incentives deferred between three and 12 years, while junior staff have theirs paid proportionately more in cash.

Annual Target Incentives

Annual individual, unit or Company targets determine the basic annual performance cash bonuses. These are capped within budgeted limits.

Risk-Reward Sharing Incentives

Our WA determines the size of the incentive pie we share, positive or negative, while the TSRs over the medium to long term drives the vesting and values of the co-investment units granted.

WA Bonus Bank

A share of our total WA delivered is allocated to fund the notional WA bonus bank account of each staff. The sharing of the WA bonus pool, positive or negative, tracks their individual performance and relative contributions to the firm.

Senior managers receive payouts of a third or less of their WA bonus bank balances, while junior staff receive up to two thirds as their annual WA cash bonuses. Deferred bonuses remaining in the individual WA bank accounts are at risk of clawbacks in the event of negative WA.

Compensation of Key Team for wealth-added and compensation of key team comparing at the year ended 31 March from 2010 through to 2005

Salaries & Benefits include annual wages and allowances, employer contributions to pension plans and benefits for the year.
Annual Cash Bonuses include annual performance target incentives for prior year.
WA Cash Bonus is the paid-out portion of the WA Bonus earned for the prior year.
Deferred WA Bonus is the portion of the WA Bonus earned for the prior year that is at risk of clawback in future.
Co-investment grants at nominal value of S$1 each and subject to vesting and other conditions up to 12 years, include:
1. a. T-Scope units which may lapse if performance conditions are not met;
2. b. Restricted co-investment units vesting over varying time horizons.
Negative WA Bonus allocated for negative WA delivered in the prior year, which is offset against past deferred WA bonuses available in the WA Bonus Banks of staff.
Excess negative WA Bonus to be aggregated at the Company level and carried forward for offsetting against future positive WA incentive pools.

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Notes

Key Team includes Executive Directors, Senior Managing Directors, Managing Directors and management Directors.

Co-investment Unit Grants

Subject to positive portfolio WA or other conditions, our staff may be awarded performance or restricted co-investment units. These grow or decline in value with Temasek’s TSRs over the years, reinforcing an ownership mindset in our team.

The Temasek staff co-investment plan (T-Scope) provides for grants of co-investment units to our staff when Temasek achieves positive WA. Grants must meet performance conditions over a minimum period of three years before vesting begins, and lapse after 12 years.

Additional medium-term restricted co-investment units may be awarded to staff.

Reward-Risk Alignment in Practice

With positive WA in prior years, our staff shared the gains in the form of WA bonus payouts along with the vesting and appreciation of their co-investment units.

The negative WA of S$6.3 billion for year ended 31 March 2008 saw the sharing of pain. Negative bonuses were allocated for the first time, resulting in clawbacks from the deferred bonus bank balances of individual staff. No T-Scope units were awarded.

A year later, the negative WA of S$68.1 billion for year ended 31 March 2009 led to the complete wipe-out of all existing bonus bank balances for our staff with no WA bonuses paid out for the year. As the bank balances were insufficient to fully set off the negative bonus allocated, the excess negative bonus allocations were aggregated at the Company level and carried forward to be offset against future positive WA incentives. No T-Scope units were awarded for a second year.

This practice of sharing gains and the associated risks through market cycles for up to 12 years reaffirms the principle of ownership and alignment with sustainable value over the long term, especially for senior management.

Temasek Report 2010