The Board's Conduct of Affairs
Every company should be headed by an effective Board to lead and control the company. The Board is collectively responsible for the long-term success of the company. The Board works with Management to achieve this objective and Management remains accountable to the Board.
The Board comprises 10 Directors, of which nine are non-executive independent Directors. The President & Group Chief Executive Officer (P&GCEO), who is an executive Director, is the only non-independent Director. This exceeds the requirements in the Code.
The Board has diversity of skills and knowledge, educational background, ethnicity and gender. Each Director brings to the Board skills, experience, insights and sound judgement which, together with his or her strategic networking relationships, serve to further the interests of the Group. The Board oversees the strategic direction, performance and affairs of the Company and is collectively responsible for the long-term success of the Company.
The Board appoints the P&GCEO; the P&GCEO is responsible for developing and implementing the Group's strategic plans approved by the Board. He is also responsible for developing and managing the Group's business.
The Board has adopted a Board Charter setting forth the duties and responsibilities of the Board. These include approving the Group's broad policies, strategies, objectives, annual budgets, major funding, including capital management proposals, investments and divestments.
The Board has reserved authority to approve certain matters and these include:
The Board has established various Board Committees to assist it in the discharge of its functions. These Board Committees are the Audit Committee (AC), the Executive Resource and Compensation Committee (ERCC), the Finance and Investment Committee (FIC), the Nominating Committee (NC) and the Risk Committee (RC). The compositions of the various Board Committees are set out on the inside-back cover of this Annual Report. P&GCEO attends all Board Committee meetings on an ex-officio basis.
Each of these Board Committees operates under delegated authority from the Board with the Board retaining overall oversight. The Board may form other Board Committees as dictated by business imperatives. Membership of the various Board Committees is managed to ensure an equitable distribution of responsibilities among Board members, to maximise the effectiveness of the Board and to foster active participation and contribution from Board members. Diversity of experience and appropriate skills are considered in determining the composition of the respective Board Committees.
The Board regularly undertakes a review of its Board Committees structure, their membership and terms of reference to ensure that the Board continues to be effective. The last review took place in 2015 and the review resulted in the Finance and Budget Committee merging with the Investment Committee to form the FIC as the remits of the previous two committees covered inter-related matters of budget, finance, capital management and investments. The review also resulted in the dissolution of the Corporate Disclosure Committee because references of corporate disclosure matters to the committee for approval were limited as Management is responsible for disclosure matters generally. Disclosure of material matters such as financial results are referred to the Board for approval.
The Board has adopted a set of internal controls which establishes approval limits for capital expenditure, investments, divestments, bank borrowings and issuance of shares as well as debt and equity-linked instruments. Apart from matters that specifically require the Board's approval, the Board delegates authority for transactions below those limits to Board Committees and Management. Approval sub-limits are also provided at Management level to optimise operational efficiency.
The Board meets at least once every quarter, and as required by business imperatives. Prior to the start of each Board meeting, the non-executive Directors meet without the presence of Management. Where exigencies prevent a Director from attending a Board meeting in person, the Constitution of the Company (Constitution) permits the Director to participate via teleconferencing or video conferencing. The Board and Board Committees may also make decisions by way of resolutions in writing.
A total of five Board meetings were held in FY 2015. This included an annual offsite meeting with Senior Management to review and plan the Group's longer term strategy and prospects. A table showing the attendance record of the Directors at meetings of Board and Board Committees during FY 2015 is set out on page 41 of this Annual Report. The Company believes in the manifest contributions of its Directors beyond attendance at formal Board and Board Committees meetings. To judge a Director's contribution based on his or her attendance at formal meetings alone would not do justice to his or her overall contributions, which include being accessible to Management for guidance or exchange of views outside the formal environment of Board and Board Committees meetings.
The Company provides suitable training for Directors. Upon appointment, each Director is provided with a formal letter of appointment and a copy of Directors' Manual (which includes information on a broad range of matters relating to the role and responsibilities of a director). All Directors on appointment also undergo an induction programme to familiarise themselves with matters relating to the Company's business activities, its strategic directions and policies, the regulatory environment in which the Group operates and the Company's corporate governance practices. Following their appointment, Directors are provided with opportunities for continuing education in areas such as directors' duties and responsibilities, changes to regulations and accounting standards and industry-related matters, so as to be updated on matters that affect or may enhance their performance as Directors or Board Committee members.
Board Composition and Guidance
There should be a strong and independent element on the Board, which is able to exercise objective judgement on corporate affairs independently, in particular, from Management and 10% shareholders. No individual or small group of individuals should be allowed to dominate the Board's decision-making.
The Board, through the NC, reviews from time to time the size and composition of the Board, with a view to ensuring that the size of the Board is appropriate in facilitating effective decision-making taking into account the scope and nature of the Group's operations, and that the Board has a strong independent element.
The Board presently comprises 10 Directors, of which nine are non-executive independent Directors. The Chairman of the Board is a non-executive independent Director. Profiles of the Directors are provided on pages 12 to 17 of this Annual Report.
The Board, taking into account the views of the NC, assesses the independence of each Director in accordance with the guidance in the Code. An independent director is one who has no relationship with the Company, its related corporations, its shareholders who hold 10% or more of the voting shares of the Company or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of his or her independent business judgement. The non-executive Directors had provided declarations of their independence, which have been deliberated upon by the NC and the Board. The Board has also examined the different relationships identified by the Code that might impair the Directors' independence and objectivity.
Mr Ng Kee Choe and Ms Euleen Goh serve as members on the Board of Trustees of Temasek Trust. Temasek Trust is the philanthropic arm of Temasek Holdings (Private) Limited (Temasek), which is the controlling shareholder of the Company. Temasek Trust is a not-for-profit organisation that independently oversees the management and disbursement of Temasek's endowments and gifts. Mr Ng and Ms Goh's roles as members of the Board of Trustees are non-executive in nature and they are not involved in the day-to-day conduct of the business of Temasek Trust. They also do not represent Temasek on the Board of the Company and they are not accustomed or under an obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of Temasek in relation to the corporate affairs of the Company.
Ms Euleen Goh is also a non-executive director of DBS Bank Ltd. (DBS Bank) and Mr James Koh is a non-executive director of United Overseas Bank Limited (UOB Bank). The Board notes that both roles are non-executive in nature and both Ms Goh and Mr Koh are not involved in the business operations of the respective banks. The Board considers that the payments made to DBS Bank and UOB Bank were not significant compared with the revenues of the respective banks, or the overall payments made by the Group to its banks, in FY 2015. In addition, the services provided by DBS Bank and UOB Bank were financial transactions carried out in the ordinary course of their respective businesses and on normal commercial terms and at arm's length. Further, the services were not material in the context of all financial and other related services that the Group had received from its banks in FY 2015.
Mr Stephen Lee served as a senior international adviser of Temasek International Advisors Pte Ltd (TIA), a subsidiary of Temasek, from the start of FY 2015 until 31 August 2015. In that role, Mr Lee provided corporate advisory services to Temasek in relation to proposed investments or projects of Temasek which were non-real estate business in nature. That role did not pose any issues of conflict of interests for Mr Lee. Similar to the assessment made in respect of Mr Ng and Ms Goh's roles in the Board of Trustees of Temasek Trust, Mr Lee's role in TIA was non-executive and advisory in nature, and he was not involved in the day-to-day conduct of the business of TIA. He also does not represent Temasek on the Board and is not accustomed or under an obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of Temasek in acting as a Director of the Company.
Mr Kee Teck Koon holds the position of corporate advisor at TIA. In this role, Mr Kee provides corporate advisory services to Temasek in relation to proposed investments or projects of Temasek which are non-real estate business in nature. This role does not pose any issues of conflict of interests for Mr Kee. Similarly, Mr Kee's role in TIA is non-executive and advisory in nature, and he is not involved in the day-to-day conduct of the business of TIA. He also does not represent Temasek on the Board and is not accustomed or under an obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of Temasek in acting as a Director of the Company.
Mr Lee is also the non-executive chairman of Singapore Airlines Limited (SIA) and Mr Israel, the non-executive chairman of Singapore Telecommunications Limited (Singtel). The flight and telecommunication services provided to the Group by SIA and Singtel respectively were in the ordinary course of businesses of SIA and Singtel and the payments made by the Group were not material relative to their respective revenues.
The Board has also considered whether each of Mr Ng, Mr Israel, Ms Goh, Mr Koh, Mr Lee and Mr Kee had demonstrated independence of character and judgement in the discharge of his or her responsibilities as a Director of the Company in FY 2015, and is satisfied that each of Mr Ng, Mr Israel, Ms Goh, Mr Koh, Mr Lee and Mr Kee had acted with independent judgement. Each of them had also recused himself or herself from participating in any board deliberation on any transactions that might potentially give rise to a conflict of interest. The Board therefore considers that the relationships and circumstances set out above did not impair their independence and objectivity.
The Board has also considered whether each of Mr John Morschel, Tan Sri Amirsham A Aziz and Dr Philip Pillai had demonstrated independence of character and judgement in the discharge of his responsibilities as a Director in FY 2015. Dr Pillai is also a non-executive member of the Inland Revenue Authority of Singapore, a statutory board which functions as the tax collecting agent of Singapore. This role generates no conflict of interest in respect of his role as a Director of the Company. The Board is satisfied that each of Mr Morschel, Tan Sri Amirsham and Dr Pillai had acted with independent judgement.
Mr Koh has served on the Board for more than 11 years and the Code recommends that the independence of any director who has served beyond nine years be subject to rigorous review. The Board has reviewed and determined that Mr Koh had continuously demonstrated independence in character and judgement in the discharge of his responsibilities as a Director of the Company during FY 2015. He had been forthcoming in expressing his individual viewpoints, remained active in his debate over issues concerning the Group, and was objective in his scrutiny of and challenges to Management. He had actively sought clarification and amplification of board affairs as necessary, including through direct access to the Group's employees and external advisors.
On the bases of the declarations of independence provided by the Directors and the guidance in the Code, the Board has determined that Mr Lim Ming Yan, the Company's P&GCEO, is the only non-independent Director and all other members of the Board are independent directors as defined under the Code. Each member of the NC and Board had recused himself or herself from the NC and the Board's deliberations respectively on his or her own independence.
At all times, the Directors are collectively and individually obliged to act honestly and with diligence, and in the best interests of the Company. In the event of a conflict of interest situation arising in respect of a matter under consideration by the Board, the Director concerned also complies with disclosure obligations and recuses himself or herself from participating in the Board's deliberation on the matter.
Chairman and Chief Executive Officer
There should be a clear division of responsibilities between the leadership of the Board and the executives responsible for managing the company's business. No one individual should represent a considerable concentration of power.
To maintain an appropriate balance of power, increased accountability and greater capacity of the Board for independent decision making, the roles and responsibilities of the Chairman and the P&GCEO are held by separate individuals.
The non-executive independent Chairman, Mr Ng Kee Choe, is responsible for leading the Board and ensuring that the Board is effective in all aspects of its role. The P&GCEO, Mr Lim Ming Yan, has full executive responsibilities over the business directions and operational decisions of the Group, and is responsible for making strategic proposals, implementing the approved strategies and policies and conducting the Group's business.
The Chairman is responsible for leadership of the Board and for creating the conditions for the overall effectiveness of the Board, Board Committees and individual Directors. This includes setting the agenda of the Board in consultation with the P&GCEO and promoting constructive engagement among the Directors as well as between the Board and the P&GCEO on strategic issues. The Chairman plays a significant leadership role by providing clear oversight, direction, advice and guidance to the P&GCEO on strategies. He also engages with other members of the senior leadership regularly.
The Chairman and the P&GCEO are not immediate family members. The separation of the roles of the Chairman and the P&GCEO and the resulting clarity of roles provide a healthy professional relationship between the Board and Management, and facilitate robust deliberations on the Group's business activities and the exchange of ideas and views to help shape the strategic process.
The Board has established the NC, which makes recommendations to the Board on all appointments to the Board and Board Committees. The NC seeks to ensure that the composition of the Board provides an appropriate balance and diversity of skills, experience, gender and knowledge of the industry, and that the Directors, as a group, have the necessary core competencies relevant to the Group's business.
All the NC members, including the Chairman of the NC, are non-executive independent Directors.
The NC is guided by its terms of reference, in particular, the NC:
The NC carries out a proactive review of the Board composition at least annually as well as on each occasion that an existing non-executive Director gives notice of his or her intention to retire or resign. This is to assess the collective skills of non-executive Directors represented on the Board to determine whether the Board, as a whole, has the skills required to achieve the Group's strategic and operational objectives. The outcome of that assessment will be reported to the Board. In carrying out this review, the NC will take into account that the Board composition should reflect balance in matters such as skills representation, tenure, experience, age spread and diversity (including gender diversity). The NC also identifies suitable candidates for appointment to the Board. External consultants may be retained from time to time to access a wide base of potential non-executive Directors. Those considered will be assessed against a range of criteria including background, experience, professional skills and personal qualities including integrity and reputation as well as expected contributions to the highest standards of corporate governance. The NC and the Board will also consider whether a candidate's skills and experience will complement the existing Board, and whether the candidate has sufficient time available to commit to his or her responsibilities as a Director.
The current Board comprises individuals who are business leaders and professionals with financial, banking, real estate, legal, investment and accounting backgrounds. The varied backgrounds of the Directors enable Management to benefit from their respective expertise and diverse background. The Board also considers gender as an important aspect of diversity alongside factors such as the age, ethnicity and educational background of its members, as it believes that diversity in the Board's composition contributes to the quality of its decision making. The Company will continue to consider the merits of the candidates in its Board renewal process and believes that doing so will meet its aim of achieving diversity of perspectives as described above.
Election of Board members is the prerogative and right of shareholders. The Constitution requires one-third of its Directors (prioritised by length of service since the previous re-election or appointment and who are not otherwise required to retire) to retire and subject themselves to re-election by shareholders at every annual general meeting (AGM) (one-third rotation rule). In addition, any newly appointed Director (whether as an additional Director or to fill a casual vacancy) will submit himself or herself for retirement and re-election at the AGM immediately following his or her appointment. Thereafter, he or she will be subject to the one-third rotation rule.
With regard to the re-appointment/re-election of existing Directors each year, the NC advises the Board on those Directors who are retiring or due for consideration to retire in accordance with the provisions of the Constitution and the Companies Act. The NC makes recommendations to the Board as to whether the Board should support the re-appointment/re-election of a Director who is retiring. In making recommendations, the NC will undertake a process of review of the retiring non-executive Director's performance during the period in which the non-executive Director has been a member of the Board. Each member of the NC will recuse himself or herself from deliberations on his or her own re-appointment/re-election. Shareholders are provided with relevant information on the candidates for election or re-election.
The P&GCEO, as a Board member, is also subject to the one-third rotation rule. His role as P&GCEO is separate from his position as a Board member, and does not affect the ability of shareholders to exercise their right to select all Board members.
On the issue of Board renewal, the Company believes that Board renewal is a necessary and continual process, for good governance and ensuring that the Board has the skills, expertise and experience which are relevant to the evolving needs of the Group's business; renewal or replacement of a Director therefore does not necessarily reflect his performance or contributions to date. The Board has established the guideline that a non-executive Director will serve a maximum of two three-year terms, and any extension of term will be individually considered by the NC which will make its recommendation to the Board.
Guideline 4.4 of the Code recommends that the Board should determine the maximum number of listed company board representations which any director may hold, and disclose this in the annual report. The Board is of the view that the limit on the number of listed company directorships that an individual may hold should be considered on a case-by-case basis, as a person's available time and attention may be affected by many different factors such as whether he or she is in full-time employment and his or her other responsibilities. A director with multiple directorships is expected to ensure that sufficient attention can be and is given to the affairs of the Group. The Board believes that each Director is best placed to determine and ensure that he or she is able to devote sufficient time and attention to discharge his or her duties and responsibilities as a director of the Company, bearing in mind his or her other commitments. In considering the nomination of any individual for appointment or re-election, the NC will take into account, among other things, the competing time commitments faced by any such individual with multiple Board memberships as well as his or her other principal commitments. All Directors had confirmed that notwithstanding the number of their individual listed company board representations and other principal commitments which each of them held, they were able to devote sufficient time and attention to the affairs of the Company. The Board also notes that, as at the date of this Report, none of the independent Directors serves on more than four listed company boards. Taking into account also the attendance record of the Directors at meetings of Board and Board Committees during FY 2015 (set out on page 41 of this Annual Report), the Board is of the view that the current commitments of each of its Directors are reasonable and each of the Directors is able to and has been adequately carrying out his or her duties.
There should be a formal annual assessment of the effectiveness of the Board as a whole and its board committees and the contribution by each director to the effectiveness of the Board.
The Company believes that Board performance is ultimately reflected in the long-term performance of the Group.
The Board, through the NC, strives to ensure that there is an optimal blend in the Board of background, experience and knowledge in business, finance and management skills critical to the Group's business, and that each Director can bring to the Board an independent and objective perspective to enable balanced and well-considered decisions to be made in the interests of the Group. Contributions by an individual Board member can also take other forms, including providing objective perspectives on issues, facilitating business opportunities and strategic relationships, and accessibility to Management outside of the formal environment of Board and/or Board Committees meetings. The contributions and performance of each Director were assessed by the NC as part of its periodic reviews of the compositions of the Board and the Board Committees.
Each year, the NC undertakes a process to evaluate the effectiveness of the Board as a whole and the Board Committees. An external consultant was engaged to facilitate the evaluation process for the Board's performance in FY 2015. The consultant is independent of and is not related to the Company or any of its Directors. As part of the process, questionnaires were sent by the consultant to the Directors and Management and the findings were evaluated by the consultant and reported, together with the recommendations of the consultant, to the Chairman of the Board (also Chairman of the NC). The evaluation categories covered in the survey questionnaire included Board composition, information management, Board processes, corporate integrity and social responsibility, managing company's performance, strategy review, Board Committees effectiveness, P&GCEO performance and succession planning, Director development and management, and managing risk and adversity. The findings and the recommendations of the consultant were deliberated upon by the Board.
The Board was also able to assess the Board Committees through their regular reports to the Board on their activities. In respect of individual Directors, formal evaluation would be done by the NC as and when a Director was due for retirement by rotation.
Access to Information
In order to fulfill their responsibilities, directors should be provided with complete, adequate and timely information prior to board meetings and on an on-going basis so as to enable them to make informed decisions to discharge their duties and responsibilities.
The Company recognises the importance of providing the Board with relevant information on a timely basis prior to Board meetings and on an ongoing basis, to enable the Directors to make informed decisions to discharge their duties and responsibilities. Reports on the Group's performance are also provided to the Board on a regular basis.
The Board meets regularly and Board meetings, in general, last up to a full day. At each Board meeting, the Chairperson of each Board Committee provides an update on the significant matters discussed at the Board Committee meetings, the P&GCEO provides updates on the Group's business and operations and the Group Chief Financial Officer (GCFO) presents the financial performance. Presentations in relation to specific business areas are also made by senior executives and external consultants or experts; this allows the Board to develop a good understanding of the progress of the Group's business as well as the issues and challenges facing the Group and also promotes active engagement with the key executives of the Group.
As a general rule, Board papers are sent to Board members at least five working days prior to each Board meeting, to allow the members of the Board to prepare for the Board meetings and to enable discussions to focus on any questions that they may have.
In line with the Company's commitment to limit paper wastage and reduce its carbon footprint, the Company no longer provides printed copies of Board papers and Directors are instead provided with tablet devices to enable them to access and read Board and Board Committees papers prior to and at meetings. This initiative also enhances information security as the papers are downloaded to the tablet devices through an encrypted channel.
In addition to providing complete, adequate and timely information to the Board on Board affairs and issues requiring the Board's decision, Management also provides ongoing reports relating to the operational and financial performance of the Company, such as monthly management reports.
Where appropriate, informal meetings are also held for Management to brief Directors on prospective deals and potential developments in the early stages before formal Board approval is sought.
The Board has separate and independent access to Management including the Company Secretary at all times. The Company Secretary attends to corporate secretarial administration matters and is the corporate governance advisor on corporate matters to the Board and Management. The Company Secretary attends all Board meetings. The Board, whether as individual Director or as a group, is also entitled to have access to independent professional advice where required, at the Company's expense.
The Board sets aside time at each scheduled meeting to meet without the presence of Management; the AC also meets the internal and external auditors separately at least once a year without the presence of the P&GCEO and Management and also has unfettered access to any information that it may require.
Procedures for Developing Remuneration Policies
There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his own remuneration.
Level and Mix of Remuneration
The level and structure of remuneration should be aligned with the long-term interest and risk policies of the company, and should be appropriate to attract, retain and motivate (a) the directors to provide good stewardship of the company, and (b) key management personnel to successfully manage the company. However, companies should avoid paying more than is necessary for this purpose.
Disclosure on Remuneration
Every company should provide clear disclosure of its remuneration policies, level and mix of remuneration, and the procedure for setting remuneration, in the company's Annual Report. It should provide disclosure in relation to its remuneration policies to enable investors to understand the link between remuneration paid to directors and key management personnel, and performance.
The Board has established the ERCC to oversee executive compensation and development in the Company. The ERCC sets appropriate remuneration policies and designs competitive compensation packages with a focus on long term sustainability of business and long term shareholders' return.
The ERCC also aims to build capable and committed management teams through competitive compensation and progressive policies which are aligned to the long-term interests and risk policies of the Group, and which can attract, motivate and retain a pool of talented executives to drive the growth of the Company. The ERCC thus plays a crucial role in helping to ensure that the Company is able to attract, motivate and retain the best talents to drive the Group's business forward.
All the ERCC members, including the Chairman of the ERCC, are non-executive independent Directors.
The ERCC is guided by its terms of reference, in particular, the ERCC recommends to the Board for approval a general framework of remuneration for the non-executive Directors and key management personnel of the Group, and recommends to the Board for approval the specific remuneration package for each key management personnel. The ERCC also recommends to the Board for endorsement the specific remuneration package for each Director.
The ERCC conducts, on an annual basis, the evaluation of the P&GCEO's performance and a succession planning review of the P&GCEO and key management positions in the Group and presents its findings and recommendations to the Board. Potential candidates for leadership succession are reviewed for their readiness in the immediate, medium and longer term.
Remuneration policy for key management personnel
The principles governing the Company's key management personnel remuneration policy are as follows:
The Board sets the remuneration policies in line with the Company's business strategy and approves the executive compensation framework based on the key principle of linking pay to performance. The Board has access to independent remuneration consultants to advise as required.
In FY 2015, the ERCC appointed an independent remuneration consultant, Mercer (Singapore) Pte Ltd, to provide professional advice on board and executive remuneration. The consultant is not related to the Company or any of its Directors. In its deliberations, the ERCC also took into consideration industry practices and norms in compensation.
Executive Remuneration for Key Management Personnel
Remuneration for key management personnel comprises a fixed component, a variable cash component, a share-based component and market-related benefits:
The fixed component comprises the base salary, fixed allowances and compulsory employer contribution to an employee's Central Provident Fund.
Variable Cash Component:
The variable cash component comprises the Balanced Scorecard Bonus Plan (BSBP) and Economic Value-Added (EVA)- based Incentive Plan (EBIP).
Balance Scorecard Bonus Plan
The BSBP is linked to the achievement of annual performance targets for each key management personnel as agreed at the beginning of the financial year with the Board and/or the P&GCEO, as the case may be.
Under the Balanced Scorecard framework, the Group's strategy and goals are translated to performance outcomes comprising both quantitative and qualitative targets in the dimensions of Financial, Execution, Growth and People; these are cascaded down throughout the organisation, thereby creating alignment across the Group.
After the close of the year, the ERCC reviews the Group's achievements against the targets set in the balanced scorecard, determines the overall performance taking into consideration qualitative factors such as the business environment, regulatory landscape and industry trends, and approves of a bonus pool that is commensurate with the performance achieved.
In determining the payout quantum for each key management personnel under the plan, the ERCC considers overall business performance, individual performance as well as affordability.
Economic Value-Added -based Incentive Plan
The EBIP is based on sharing a portion of the economic value added with employees, which varies according to the actual achievement of residual economic profit.
The EBIP rewards for sustainable shareholder value creation over the medium term achieved by growing profits, deploying capital efficiently and managing the risk profile and risk time horizon of a real estate business.
Under this plan, the bonus declared to each EBIP participant for the current year is added to the participant's balance carried forward from the previous year, upon which one-third of the resulting total amount is paid out in cash, with the remaining two-thirds to be carried forward to the following year. Amounts in each participant's EBIP account are at risk because a significant reduction in EVA in any year may result in retraction (performance clawback) of the EBIP bonus declared in preceding years. The EBIP encourages key management personnel to work for sustained EVA generation and to take actions that are aligned with the longer term interests of shareholders.
In determining the EBIP bonus declared to each participant, the ERCC considers the overall business performance, individual performance and relevant market remuneration benchmarks.
Based on the ERCC's assessment that the actual performance of the Group in FY 2015 has not met the pre-determined EVA targets, the resulting bonus declared and paid out under the EBIP has been adjusted accordingly to reflect the performance level.
Share awards were granted in FY 2015 pursuant to the CapitaLand Performance Share Plan 2010 (PSP) and the CapitaLand Restricted Share Plan 2010 (RSP) (together, the Share Plans), approved and adopted by the shareholders of the Company at the Extraordinary General Meeting held on 16 April 2010.
For FY 2015, the total number of shares in the awards granted under the Share Plans did not exceed the yearly limit of 1% of the total number of issued shares (excluding treasury shares). The obligation to deliver the shares is expected to be satisfied out of treasury shares.
Details of the Share Plans as well as awards granted under the Share Plans are given in the Share Plans section of the Directors' Statement on pages 99 to 103 and the Equity Compensation Benefits section of the Notes to the FY 2015 Financial Statements on pages 171 to 175.
CapitaLand Performance Share Plan 2010
During FY 2015, the ERCC granted awards which are conditional on targets set for a performance period, currently prescribed to be a three-year performance period. A specified number of shares will only be released to the recipient at the end of the qualifying performance period, provided that minimally the threshold targets are achieved. An initial number of shares (baseline award) is allocated according to the following performance conditions:
The above performance measures have been selected as key measurements of wealth creation for shareholders. The final number of shares to be released will depend on the achievement of pre-determined targets over the three-year performance period. No share will be released if the threshold targets are not met at the end of the performance period. On the other hand, if superior targets are met, more shares than the baseline award can be released. For awards granted in 2012 and 2013, the maximum is 175% of the baseline award. For awards granted in 2014 and 2015, the maximum is 170% and 200% of the respective year's baseline awards. Recipients will receive fully paid shares at no cost.
Based on the ERCC's assessment that the performance achieved by the Group has not met the pre-determined performance targets for share awards based on the performance period from the financial year ended 31 December 2013 to FY 2015, no share has been released.
CapitaLand Restricted Share Plan 2010
During FY 2015, the ERCC granted awards which are conditional on targets set for a performance period, currently prescribed to be a one-year performance period. A specified number of shares will only be released to the recipients at the end of the qualifying performance period, provided that minimally the threshold targets are achieved. An initial number of shares (baseline award) is allocated according to the following performance conditions:
The above performance measures have been selected as they are the key drivers of business performance and are aligned to shareholder value. The final number of shares to be released will depend on the achievement of pre-determined targets at the end of the one-year performance period and the release will be over a vesting period of three years. No share will be released if the threshold targets are not met at the end of the performance period. On the other hand, if superior targets are met, more shares than the baseline award can be delivered up to a maximum of 150% of the baseline award. Recipients can receive fully paid shares or, by exception, their equivalent cash value or combinations thereof, at no cost.
Based on the ERCC's assessment that the performance achieved by the Group has met the pre-determined performance targets for share awards based on the performance period FY 2015, the resulting number of shares released has been adjusted accordingly to reflect the performance level.
To further promote the alignment of Management's interests with that of shareholders, the ERCC has approved share ownership guidelines for Senior Management to instill stronger identification by senior executives with the longer term performance and growth of the Group. Under these guidelines, Senior Management participants are required to retain a prescribed proportion of the Company's shares received under the Share Plans.
The benefits provided are comparable with local market practices.
The Code requires an issuer to disclose the names and remuneration of at least the top five key management personnel (who are not also Directors or the P&GCEO) of the Company. Besides the P&GCEO who is an executive Director, the Company considers the heads of the corporate functions to be the key management personnel and accordingly the GCFO Mr Arthur Lang Tao Yih, the Group Chief Corporate Officer Mr Tan Seng Chai, and the Chief Corporate Development Officer Mr Ng Kok Siong were its key management personnel for FY 2015. The remuneration of the Chief Executive Officers of the Company's unlisted subsidiaries is not disclosed as the Board believes that such disclosure would be disadvantageous to the Group's business interest, given the highly competitive conditions in the real estate industry where poaching of executives is commonplace; any poaching is likely to result in a ratcheting up of the remuneration which is not in the interest of the Company.
The details of the remuneration for the P&GCEO are provided in the Directors' Remuneration section on page 42 of this Annual Report. The details of the other key management personnel remuneration in bands of S$250,000 and a breakdown in percentage terms are provided in the Key Management Personnel's Remuneration section on page 43 of this Annual Report.
The ERCC seeks to ensure that remuneration paid to the P&GCEO and key management personnel is strongly linked to the achievement of business and individual performance targets. The performance targets endorsed by the ERCC and approved by the Board are set at realistic yet stretched levels each year to motivate a high degree of business performance with emphasis on both short-term and longer-term quantifiable objectives. A pay-for-performance alignment study was conducted by the appointed independent remuneration consultant and reviewed by the ERCC; the findings indicate that there has been adequate pay-for-performance alignment for the Group in both absolute and relative terms against a peer group of large listed companies over a multi-year period.
For FY 2015, there were no termination, retirement or post-employment benefits granted to Directors, the P&GCEO and key management personnel. There was also no special retirement plan, 'golden parachute' or special severance package for the key management personnel.
There were no employees of the Group who were immediate family members of a Director or the P&GCEO during FY 2015. "Immediate family member" refers to the spouse, child, adopted child, step-child, sibling or parent of the individual.
Non-Executive Director Remuneration
Non-executive Directors have remuneration packages consisting of Directors' fees and attendance fees. The Directors' compensation policy is based on a scale of fees divided into basic retainer fees as Director and additional fees for attendance and serving on Board Committees.
The remuneration framework for the non-executive Directors remains unchanged from that for the year ended 31 December 2014 (FY 2014), save for the revised fee of S$30,000 (compared to S$25,000 for FY 2014) for each non-executive Director in the AC and the FIC, the latter being formed by the merger of the Investment Committee and the Finance & Budget Committee.
The fee structure for non-executive Directors for FY 2015 is as follows:
Directors' fees of the non-executive Directors (including the Chairman) will be paid as to about 70% in cash and about 30% in the form of share awards under the RSP, save in the case of a Director who is retiring from the Board at the conclusion of the AGM and a Director who has retired from the Board at the conclusion of the last AGM. These Directors will receive all of their Directors' fees in cash. The awards consist of the grant of fully paid shares, with no performance conditions attached and no vesting periods imposed. In order to encourage the alignment of the interests of the non-executive Directors with the interests of shareholders, a non-executive Director is required to hold shares in the Company worth at least one year of his or her basic retainer fee or the total number of shares awarded under the above policy, whichever is lower, at all times during his or her Board tenure. For the Chairman, the shares are required to be held for at least two years from the date of award, and the two-year moratorium shall continue to apply in the event of retirement. Details of the Directors' remuneration are provided in the Directors' Remuneration section on page 42 of this Annual Report. The P&GCEO as Executive Director does not receive Director's fees. The Directors' fees will only be paid upon approval by the shareholders at the AGM.
Compensation Risk Assessment
Under the Code, the compensation system shall take into account the risk policies of the Group, and be symmetrical with risk outcomes and sensitive to the time horizon of risks. The ERCC has conducted a Compensation Risk Assessment to review the various compensation risks that may arise as well as the mitigating policies to better manage risk exposures identified. The ERCC is satisfied that there is adequate risk mitigation features in the Group's compensation system, such as the use of malus, deferral and clawback features in the Share Plans and EBIP. The ERCC will continue to undertake periodic reviews of compensation-related risks.
The Company provides shareholders with quarterly and annual financial statements. In presenting the annual and quarterly financial statements to shareholders, the Board aims to provide shareholders with a balanced, clear and understandable assessment of the Company and the Group's performance, position and prospects. In order to achieve this, Management provides the Board with management accounts on a monthly basis and such explanation and information as any Director may require, to enable the Directors to keep abreast, and make a balanced and informed assessment, of the Group's financial performance, position and prospects.
The Company believes in conducting itself in ways that seek to deliver maximum sustainable value to its shareholders. Best practices are promoted as a means to build an excellent business for its shareholders and the Company is accountable to shareholders for its performance. Prompt fulfilment of statutory reporting requirements is but one way to maintaining shareholders' confidence and trust in the capability and integrity of the Company.
Risk Management and Internal Controls
The Board is responsible for the governance of risk. The Board should ensure that Management maintains a sound system of risk management and internal controls to safeguard shareholders' interests and the company's assets, and should determine the nature and extent of the significant risks which the Board is willing to take in achieving its strategic objectives.
The Company has in place an adequate and effective system of internal controls addressing material financial, operational, compliance and information technology risks to safeguard shareholders' interests and the Group's assets.
The Board has overall responsibility for the governance of risk and oversees Management in the design, implementation and monitoring of the risk management and internal controls system. The RC assists the Board in carrying out the Board's responsibility of overseeing the Company's risk management framework and policies.
All the RC members, including the Chairman of the RC, are non-executive independent Directors.
The RC is guided by its terms of reference, in particular, the RC:
The Group adopts an Enterprise Risk Management (ERM) Framework which sets out the required environmental and organisational components for managing risk in an integrated, systematic and consistent manner. The ERM Framework and related policies are reviewed annually. A team comprising the P&GCEO and other key management personnel is responsible for directing and monitoring the development, implementation and practice of ERM across the Group.
The Group consistently seeks to improve and strengthen its ERM Framework. As part of the ERM Framework, Management, among other things, undertakes and performs a Risk and Control Self-Assessment (RCSA) process. As a result of the RCSA process, the Group produces and maintains a risk register which identifies the material risks it faces and the corresponding internal controls it has in place to manage or mitigate those risks. The material risks are reviewed annually by the RC, the AC and the Board. The RC also reviews the approach of identifying and assessing risks and internal controls in the risk register. The system of risk management and internal controls is reviewed and, where appropriate, refined regularly by Management, the RC, the AC and the Board. Where relevant, reference is made to the best practices and guidance in the Risk Governance Guidance for Listed Boards issued by the Corporate Governance Council.
The Group has established an approach on how risk appetite is defined, monitored and reviewed across the Group. Approved by the Board, the Group Risk Appetite Statement (RAS), incorporating the risk limits, addresses the management of material risks faced by the Group. Alignment of the Group's risk profile to the Group RAS is achieved through various communication and monitoring mechanisms (including key performance indicators set for Management) put in place across the Group.
More information on the Group's ERM Framework can be found in the Enterprise Risk Management section on pages 50 to 52 of this Annual Report.
Internal and external auditors conduct audits that involve testing the effectiveness of the material internal controls in the Group addressing financial, operational, compliance and information technology risks. This includes testing, where practical, material internal controls in areas managed by external service providers. Any material non-compliance or lapses in internal controls together with corrective measures recommended by the internal and external auditors are reported to and reviewed by the AC. The adequacy and effectiveness of the measures taken by Management in response to the recommendations made by the internal and external auditors are also reviewed by the AC.
The Board has received assurance from the P&GCEO and the GCFO that:
In addition, in FY 2015, the Board has received quarterly certification by Management on the integrity of financial reporting and the Board has provided a negative assurance confirmation to shareholders as required by the Listing Manual.
Based on the ERM Framework established and the reviews conducted by Management and both the internal and external auditors, as well as the assurance from the P&GCEO and the GCFO, the Board concurs with the recommendation of the AC and RC and is of the opinion that the Group's system of risk management and internal controls addressing material financial, operational, compliance and information technology risks is adequate and effective to meet the needs of the Group in its current business environment as at 31 December 2015.
The Board notes that the system of risk management and internal controls established by Management provides reasonable assurance that the Group, as it strives to achieve its business objectives, will not be significantly affected by any event that can be reasonably foreseen or anticipated. However, the Board also notes that no system of risk management and internal controls can provide absolute assurance in this regard, or absolute assurance against poor judgement in decision making, human error, losses, fraud or other irregularities.
All the members of the AC, including the Chairman of the AC, are non-executive independent Directors. The members bring with them invaluable recent and relevant managerial and professional expertise in accounting and related financial management domains.
The AC has explicit authority to investigate any matter within its terms of reference. Management is required to provide the fullest co-operation in providing information and resources, and in implementing or carrying out all requests made by the AC. The AC has direct access to the internal and external auditors and full discretion to invite any Director or executive officer to attend its meetings. Similarly, both the internal and external auditors are given unrestricted access to the AC.
The AC is guided by its terms of reference. In particular, the AC:
During FY 2015, the Company conducted a Request for Proposal for the appointment of auditors for financial year ending 31 December 2016 (FY 2016). The AC reviewed proposals from several reputable audit firms, including the incumbent auditors, and made a recommendation to the Board that the incumbent auditors be nominated for re-appointment as the statutory auditors of the Group for FY 2016 at the forthcoming AGM. In making this recommendation, the AC considered and was satisfied with the independence and audit quality of the incumbent auditors. The Board has accepted the recommendation.
In order to maintain the independence of the external auditors, the Company has developed policies regarding the types of non-audit services that the external auditors can provide to the Group and the related approval processes. The AC has reviewed the nature and extent of non-audit services provided by the external auditors during FY 2015 and the fees paid for such services. The AC is satisfied that the independence of the external auditors has not been impaired by the provision of those services. The external auditors have also provided confirmation of their independence to the AC. The total audit and non-audit fees for FY 2015 were S$6,962,000 and S$447,000, respectively.
In FY 2015, the AC also met with the internal and external auditors, without Management's presence, to discuss the reasonableness of the financial reporting process, the system of internal controls, and the significant comments and recommendations by the auditors. Where relevant, the AC makes reference to the best practices and guidance in the Guidebook for Audit Committee in Singapore and the practice directions issued from time to time in relation to Financial Reporting Surveillance Programme administered by the Accounting and Corporate Regulatory Authority of Singapore.
Changes to accounting standards and accounting issues which have a direct impact on the financial statements were reported to and discussed with the AC at its meetings. Directors are also invited to attend relevant seminars on changes to accounting standards and issues by leading accounting firms
The Company confirms that it has complied with Rules 712, 715 and 716 of the Listing Manual.
The Company has an Internal Audit Department (CL IA) which reports directly to the AC and administratively to the GCFO. CL IA plans its internal audit schedules in consultation with, but independently of, Management and its plan is submitted to the AC for approval prior to the beginning of each year. The AC also meets with CL IA at least once a year without the presence of Management. CL IA has unfettered access to the Group's documents, records, properties and employees, including access to the AC.
CL IA is a corporate member of the Singapore branch of the Institute of Internal Auditors Inc. (IIA), which has its headquarters in the United States of America (USA). CL IA subscribes to, and is guided by, the International Standards for the Professional Practice of Internal Auditing (Standards) developed by the IIA and has incorporated these Standards into its audit practices.
To ensure that internal audits are performed by competent professionals, CL IA recruits and employs suitably qualified professional staff with the requisite skill sets and experience. For instance, CL IA staff who are involved in Information Technology (IT) audits are Certified Information System Auditors and members of the Information System Audit and Control Association (ISACA) in the USA. The ISACA Information System Auditing Standards provide guidance on the standards and procedures to be applied in IT audits.
CL IA identifies and provides training and development opportunities for its staff to ensure their technical knowledge and skill sets remain current and relevant.
Companies should treat all shareholders fairly and equitably, and should recognise, protect and facilitate the exercise of shareholders' rights, and continually review and update such governance arrangements.
The Company is committed to treating all its shareholders fairly and equitably. All shareholders enjoy specific rights under the Constitution and the relevant laws and regulations. These rights include, among other things, the right to participate in profit distributions. They are also entitled to attend general meetings and are accorded the opportunity to participate effectively and vote at general meetings.
Communication with Shareholders
Companies should actively engage their shareholders and put in place an investor relations policy to promote regular, effective and fair communication with shareholders.
The Company is committed to keeping all its shareholders and other stakeholders and analysts informed of the performance and changes in the Group or its business which would be likely to materially affect the price or value of the Company's shares, on a timely and consistent basis, so as to assist shareholders and investors in their investment decisions.
The Company has in place an Investor Relations department and a Group Communications department which facilitate effective communication with the Company's shareholders, analysts, fund managers and the media.
The Company actively engages with its shareholders and has put in place an Investor Relations Policy (Policy) to promote regular, effective and fair communications with its shareholders. The Policy is uploaded on the Group's website at www.capitaland.com.
The Group has a formal policy on corporate disclosure controls and procedures to ensure that the Company complies with its disclosure obligations under the Listing Manual.
More information on the Company's investor and media relations with shareholders can be found in the Investor & Media Relations section on pages 53 to 54 of this Annual Report.
The Company has a policy on the payment of dividends. Barring unforeseen circumstances, the Company's policy is to declare a dividend of at least 30% of the annual profit after tax and non-controlling interests excluding unrealised revaluation gains or losses as well as impairment charges or write backs.
Conduct of Shareholder Meetings
Companies should encourage greater shareholder participation at general meetings of shareholders, and allow shareholders the opportunity to communicate their views on various matters affecting the company.
The Company supports the principle of encouraging shareholder participation and voting at general meetings. Shareholders receive a CDRom containing the annual report (printed copies are available upon request) and notice of the general meeting. Notices of the general meetings are also advertised in the press and issued on SGXNet.
At general meetings, shareholders are encouraged to communicate their views and discuss with the Board and Management matters affecting the Company. All Directors (including the Chairpersons of the respective Board Committees), Management and the external auditors, would usually be present at general meetings to address any queries that the shareholders may have.
To safeguard shareholder interests and rights, a separate resolution is proposed for each substantially separate issue at general meetings. To ensure transparency in the voting process and better reflect shareholders' interest, the Company conducts electronic poll voting for all the resolutions proposed at the general meetings. Voting and vote tabulation procedures are disclosed at the general meetings. Votes cast, for or against and the respective percentages, on each resolution are tallied and displayed 'live on-screen' to shareholders immediately at the general meetings. The total number of votes cast for or against the resolutions and the respective percentages are also announced on SGXNet after the general meetings. Voting in absentia and by email, which are currently not permitted, may only be possible following careful study to ensure that the integrity of information and authentication of the identity of shareholders through the web are not compromised, and legislative changes are effected to recognise remote voting.
Minutes of the general meetings are taken and are available to shareholders for their inspection upon request. Since 2015, minutes of the annual general meetings are also uploaded on the Company's website at www.capitaland.com.
Shareholders also have the opportunity to communicate their views and discuss with the Board and Management matters affecting the Company after the general meetings.
Apart from the AC, ERCC, NC and RC, the Company has also established the FIC. All the members of the FIC, including the Chairman of the FIC, are non-executive independent Directors.
The FIC is guided by its terms of reference, in particular, the FIC reviews proposals on and, where it considers appropriate, approves proposals on investments, divestments, credit, budget variance and awards of contracts for development expenditure, within the authorities/limits approved from time to time by the Board. The FIC also undertakes the following responsibilities:
Dealings in Securities
The Company has devised and adopted a securities dealing policy for the Group's officers and employees which applies the best practice recommendations in the Listing Manual. To this end, the Company has issued guidelines to its Directors and employees in the Group which set out prohibitions against dealings in the Company's securities (i) while in possession of material unpublished price-sensitive information, (ii) during the two weeks immediately preceding, and up to the time of the announcement of the Company's financial statements for each of the first three quarters of its financial year and, (iii) during the one month immediately preceding, and up to the time of the announcement of the Company's financial statements for the full financial year. Prior to the commencement of each relevant period, an email would be sent out to all Directors and employees of the Group to inform them of the duration of the period.
Directors and employees of the Group are also prohibited from dealing in securities of the Company and/or other relevant listed entities in the Group if they are in possession of unpublished price-sensitive information of the Company and/or these other listed entities by virtue of their status as Directors and/or employees. As and when appropriate, they would be issued an advisory to refrain from dealing in the relevant securities.
Under the policy, Directors and employees are also discouraged to trade on short-term or speculative considerations. They are also prohibited from using any information with respect to other companies or entities obtained in the course of their employment in connection with securities transactions of such companies or entities.
Code of Business Conduct
The Company adheres to an ethics and code of business conduct policy which deals with issues such as confidentiality, conduct and work discipline, corporate gifts and concessionary offers. Clear policies and guidelines on how to handle workplace harassment and grievances are also in place.
The policies and guidelines are published on the Company's Intranet, which is accessible by all employees.
The policies the Company has implemented aim to help to detect and prevent occupational fraud in mainly three ways.
First, the Company offers fair compensation packages, based on practices of pay-for-performance and promotion based on merit to its employees. The Company also provides various healthcare subsidies and financial assistance schemes to alleviate the common financial pressures its employees face.
Second, clearly documented policies and work procedures incorporate internal controls which ensure that adequate checks and balances are in place. Periodic audits are also conducted to evaluate the efficacy of these internal controls.
Finally, the Company seeks to build and maintain the right organisational culture through its core values, educating its employees on good business conduct and ethical values.
Bribery and Corruption Prevention Policy
The Company adopts a strong stance against bribery and corruption. In addition to clear guidelines and procedures for the giving and receipt of corporate gifts and concessionary offers, all employees of the Group are required to make a declaration on an annual basis where they pledge to uphold the Company's core values and not to engage in any corrupt or unethical practices. This serves as a reminder to all employees to maintain the highest standards of integrity in their work and business dealings. The Company's stance against bribery and corruption is also reiterated by Management during its regular staff communication sessions.
The Company's zero tolerance policy towards bribery and corruption extends to its business dealings with third-parties. Pursuant to this policy, the Company requires that certain agreements of the Group incorporate anti-bribery and anti-corruption provisions.
A whistle-blowing policy and other procedures are put in place to provide the Group's employees and parties who have dealings with the Group with well defined, accessible and trusted channels to report suspected fraud, corruption, dishonest practices or other improprieties in the workplace, and for the independent investigation of any reported incidents and appropriate follow up action. The objective of the whistle-blowing policy is to encourage the reporting of such matters - that employees or external parties making any reports in good faith will be able to do so with the confidence that they will be treated fairly and, to the extent possible, be protected from reprisal.
C - Chairman
M - Member