By Yang Huiwen

BUSINESS leaders want companies to be far more transparent about how they disclose executive pay - especially bonuses - so shareholders can be sure about where the money is going.

The call comes after the reporting season when companies issue annual reports that list remuneration but use different basis for disclosing the pay.

It has left many investors baffled as to how to make sensible comparisons between bosses of different companies.

'It is difficult to make any comparisons between companies, not only because they have different disclosure practices, but also different pay practices,' said Mr Jon Robinson, managing director at Freshwater Advisers.

A hefty pay rise, especially in these dire economic times of falling profits, is likely to anger shareholders but the numbers do not paint the whole picture.

Often, what is disclosed in the annual report is not necessarily based on performance for the past financial year but may include payments for performance in years gone by.

A CEO might have 'earned' a hefty sum but was actually 'paid' a lesser one, depending on what bonuses for performances in preceding years were like.

Aside from the fact that a CEO's package has several components, making it difficult to compare them, another area of confusion is the bonuses.

Basically, the disclosure boils down to two main systems. For some firms, the bonus shown under 2008 is based on the performance of that year.

That is more straightforward as shareholders are able to correlate the bonus awarded with the profits of 2008 to make a meaningful comparison.

The only issue here is that since the bonus has not been paid out, actual payouts in future years could be less than what is listed in this year's report.

The other method adopted by firms is to show what bonus the CEO has been paid in 2008.

Here, the bonus paid would relate to past performance of the company, in some cases stretching as far back as 2005. In these cases, it becomes more complicated to compare a company's performance with the bonus given to the CEO.

Take Sembcorp Industries CEO Tang Kin Fei. He was paid about $8.85 million in 2008, 30 per cent higher than in 2007, when times were better.

That was because the variable component of his 2008 pay was based on the firm's performance over the three years 2005 to 2007. The 2008 results were not factored into his bonus last year.

On the other hand, NOL chief executive Ron Widdows was paid US$1.6 million (S$2.4 million) to US$1.75 million last year. The cash bonus and equity incentives were based on the 2008 performance although the 'actual compensation may be realised on different calendar years', said the company's annual report.

Disclosing what has been paid out makes it difficult to assess how the CEO is compensated relative to his company's performance for that year, said Dr Ernest Kan, vice-president of the Institute of Certified Public Accountants of Singapore. He said companies should explicitly state which financial years the bonuses are being calculated from.

CapitaLand and SingTel are two major companies that only recently made the change. In the past, CapitaLand reported what it paid its CEO, Mr Liew Mun Leong, for a particular financial year with the payment, including bonuses, awarded for the performance of past years.

But now it discloses the bonuses awarded and accrued - meaning some may be paid out at a future date - relating to that financial year alone.

This change in disclosure showed him earning - but not all was paid out - $20.52 million in bonuses alone in 2007. The bonus fell to $2.98 million for 2008.

SingTel had also changed its disclosure practice for its financial year ended March 31, 2008, showing the bonus for CEO Chua Sock Koong which relates to the performance that year.

There is no fixed rule on disclosure methods so companies make their own judgment call but they can clear up the confusion by offering more disclosure.

'It will help companies if they publish complete details of the structure of bonus arrangements, including what has been accrued and what has been paid out, so shareholders won't jump to conclusions,' said Mr Robinson.

This article was first published in The Straits Times.