Temasek Review 2021

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 rewards for short term performance and long term value creation.

Our base salaries are benchmarked against relevant markets where we compete for talent. Short term bonuses are driven by annual targets. Medium and long term incentives which form a major proportion of our annual total compensation are driven by our portfolio returns.

Deferred incentives and clawbacks are integral to our remuneration.

Returns above our overall 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.

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

For the year ended 31 March 2021, our one-year Total Shareholder Return (TSR) was 24.53% and three-year TSR was 7.29%. WA was S$62.2 billion above our risk-adjusted cost of capital of 6% aggregated across our portfolio.

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

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 TSR to exceed our three-year cost of long term debt.

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. Thus, senior management have more of their incentives deferred.

Part of the retained balances are deferred as co-investment grants which vest over the following three years. These units increase or decrease in value based on portfolio performance or market risk. 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.

Part of our positive WA incentive pool funds the Temasek co-investment 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.

Our annual operating budget funds limited time-based co-investment grants, which vest over 7 or 12 years.

A portion of the time-based co-investment grants has been redirected towards carbon abatement goals over the next 10 years in line with our T2030 sustainability goals.

These co-ownership grants reinforce our long term alignment with shareholder interest and the sustainability of our business performance over different market cycles.

Co-ownership Alignment in Practice

As part of co-ownership alignment, clawbacks are made to our employees’ retained bonus banks when WA and portfolio returns are negative.

In the last decade, we had five clawback pools. Three of these were clawback balances carried forward when the deferred WA incentives were not enough to clear the clawback pools from prior years. Clawback balances were then made good from future years’ positive WA. This demanding framework for sharing gains and the associated risks and pains through market cycles has been tested and reaffirms our ownership ethos.

To reinforce commitment to our carbon emission goals, we have taken a carbon charge against our portfolio performance, starting this year. This will reduce our incentive pool for distribution from our positive WA for the year ended 31 March 2021. In addition, we will embed carbon abatement goals in our long term incentives from this year. Each award tranche will have a life cycle of up to 12 years.

We will embed carbon abatement goals in our long term incentives from this year.