Friday, July 31, 2009

Negative Bonuses For Temasek's Staff

To be fair, Temasek does have one of the fairer compensation system among "investing companies". In fact someone should recommend to Obama to adopt Temasek's bonus pool policy in his administration's attempt to revamp pay and bonuses on Wall Street.

The Straits Times: Temasek Holdings' portfolio lost more than S$40 billion in value in the last financial year, said chief executive Ho Ching yesterday. The exact figures for the 12 months to March 31 are not available yet, but the headline number indicates how the company has fared in the financial crisis. Temasek's next annual report, due out next month, will shed more light on the portfolio's performance.

In February, then Senior Minister of State (Finance and Transport) Lim Hwee Hua told Parliament that between March and November last year, Temasek had lost S$58 billion. Its portfolio value fell 31 per cent from S$185 billion to S$127 billion. It is unclear if Temasek managed to recoup any of those losses between November last year and March this year. But analysts say Ms Ho's comments yesterday indicate that even if Temasek did narrow its losses, it may not have been by much.

In a speech to the IPS Corporate Associates Lunch yesterday, Ms Ho said that Temasek had reported an amount of S$40 billion as its annual 'value-at-risk' for its financial year between April last year and March this year. This means there is a 16 per cent probability that the portfolio would drop by S$40 billion in the period, she said, adding: 'Indeed, it had turned out to be so, and more.'

Global stock markets plunged to record lows in early March, but have rallied strongly since. Nomura analysts estimated last month that Temasek had recouped a considerable amount of its losses between November and mid-May. They said the portfolio likely rebounded 13 per cent, or S$16 billion, in that time. But it is possible that most of these gains were made between March and May and will not be seen in the latest annual report.

The entire staff of Temasek Holdings are taking personal financial hits, with annual bonuses likely to be slashed in the wake of the investment firm's losses over the past year. Part of every Temasek employee's bonus goes into a pool that is paid out over a number of years rather than at the end of each year. When Temasek meets its internal performance benchmarks with higher-than-targeted returns, the pool of bonuses to be distributed grows and each employee gets a bigger slice. But when it fails to do so, employees get 'negative bonuses': They get no money from the pool, or the value of the overall pool shrinks. This compensation structure is based on a key principle of having staff 'share in the institution's performance, both for positive and negative results', said chief executive Ho Ching yesterday.

In her speech at the IPS Corporate Associates Lunch, she said: 'We share gains and pains alongside our shareholder. This is in essence having an owner's approach to our business and operations. Temasek came in below its targets last year as well as this year, which means staff get 'negative bonuses. From CEO to office attendants, all our staff were allocated negative bonuses last year, and will be allocated more negative bonuses this year,' said Ms Ho.

If Temasek achieves above-target returns, known as Wealth Added and reported in the annual Temasek Review, it will have gains to share with its staff. 'It is a tough challenge to share negative is even tougher to deliver a positive Wealth Added every year,' she said.

p/s photos: Linda Onn

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