Temasek Review 2020

Instilling Ownership

Our ownership ethos places the institution above the individual, emphasises long term over short term, and aligns employee and shareholder interests over economic cycles.

Our compensation framework aims to foster a high performing and responsible culture where our employees think and act as owners with a strong sense of intergenerational duty, sharing gains and pains alongside our shareholder. It balances reward for short term performance and long term value creation.

Deferred incentives and
clawbacks are integral
to our remuneration.

Our base salaries are benchmarked against relevant markets where we compete for talent. Short term bonuses are driven by annual targets. Returns above our risk-adjusted cost of capital determine our Wealth Added (WA) incentive pool, while negative portfolio returns determine our clawback pool. Deferred incentives and clawbacks are integral to our remuneration. Longer term incentives can be deferred up to 12 years, and are subject to market risks and clawbacks, to account for the sustainability of returns over market cycles.

For the year ended 31 March 2020, our one-year Total Shareholder Return (TSR) was -2.28% and three-year TSR was 3.63%. The impact on our one-year TSR has in turn reflected on our WA for the year. WA was S$28.4 billion below our risk-adjusted cost of capital of 7% aggregated across our portfolio.

Annual Cash Bonuses – Our Short Term Incentives

Annual cash bonuses are driven by company-wide, team and individual performance, and capped within budgeted limits. One of our annual performance targets requires our three-year Total Shareholder Return (TSR) to exceed our three-year cost of long term debt.

Rolling S$ Total Shareholder Return (%)
Rolling S$ Total Shareholder Return (%)
  • One-year
  • Three-year
  • 10-year

Apart from financial targets, our “Make-A-Difference” (MAD) Programme rewards employees for achieving non-financial goals targeted at strengthening the institution, contributing to their communities, and taking care of their families and themselves.

WA Bonus Bank – Our Medium Term Incentives

A portion of our WA incentive pool, whether positive or negative, is distributed into each employee’s notional WA bonus bank account, based on the individual’s performance and contributions over four years.

If WA bonus bank balances are positive, senior management staff receive one third payout from their balances. The corresponding payout ratios are half for mid-level management and two thirds for junior management and support staff.

Part of the retained balances are deferred as co-investment (R-Scope) grants which vest over the following three years. These units increase or decrease in value based on portfolio performance or market risk, which strengthens the alignment with medium term risks for Temasek and its shareholder. The remaining WA bonus bank balances are subject to clawbacks in the future should portfolio returns be negative.

Co-ownership Grants – Our Long Term Incentives

Our employees may be awarded co-investment grants with performance or time-based vesting conditions. These units grow or decline in value with our yearly TSR, reinforcing the ownership culture of our company. Co-investment units lapse after 12 years.

Incentives can be deferred
up to 12 years and are
subject to market risks and clawbacks.

Part of our positive WA incentive pool funds the Temasek co-investment (T-Scope) grants, which are subject to further stringent multi-year Temasek portfolio performance conditions to trigger a five-year vesting. Another portion is held for three to seven years, as a company-wide reserve to be released progressively for time-based co-investment grants. Clawbacks, if any, will first be taken from this company-wide reserve, before being deducted from employees’ WA bonus bank accounts.

Incentives can be deferred
up to 12 years and are
subject to market risks and clawbacks.

Our annual operating budget funds limited time-based co-investment grants i.e. S-Scopes and Q-Scopes. They reinforce our long term alignment with shareholder interest and the sustainability of our business performance over different market cycles. S-Scopes and Q-Scopes have a total vesting period of seven and 12 years respectively.

Co-ownership Alignment in Practice

As part of co-ownership alignment, clawbacks were made to our employees’ retained bonus banks when WA for prior years was negative.

In the last decade, we had four clawback pools. Of these, there were three instances we had to carry forward clawback balances, when the deferred WA incentives were not enough to clear the clawback pools from prior years. Clawback balances were carried forward as company-wide clawback pools, and made good from future years’ positive WA.

Since 2016, clawbacks will only be applied when both WA and portfolio returns are negative.

The negative portfolio returns for the year ended 31 March 2020 resulted in a clawback pool, with deductions to be made from employees’ WA bonus bank balances and prior years’ undistributed WA incentives pool.

This framework for sharing gains and the associated risks and pains through market cycles has been tested, thereby reaffirming our ownership ethos.

In the light of the COVID-19 pandemic this year, we exercised prudence and demonstrated our ownership mindset, with our senior management taking a pay cut of between 5 and 15%. In addition, a majority of our senior team donated up to 5% of their annual base salary. These contributions were channelled to support the public health infectious disease response globally, with a one-for-one matching by the company. A firm-wide pay freeze was also implemented. These actions further attest to our commitment to stand in solidarity with, and support, our portfolio companies and community.

(for year ended 31 March)

WA Incentives of Key Team

WA Incentives of Key Team
  • Wealth Added (WA) in dollars
  • Total Shareholder Return in dollars (Total Dollar Return or TDR)
  • Paid-out portion of WA Bonus earned for prior year’s performance
  • Deferred portion of WA Bonus earned for prior year’s performance, with future clawback risks
  • Co-investment units which grow or shrink with total returns to shareholder, and are subject to performance and time-based conditions
  • Clawback of deferred WA Bonus from prior years
  • Clawback balances carried forward for future bonus offset
  • Part of earned WA Bonus used to offset the clawback balances brought forward from prior year

Chart Notes