Guest essay by Au-Chen ToShan
Our sovereign wealth funds were built from the diligence of its citizens over the decades. They grew as Singapore grew. Even after huge losses from poorly timed investments, those funds currently hold about S$500 billion or S$230,000 per adult citizen.
It has been 17 years since the late President Ong Teng Cheong unsuccessfully asked for more information on our financial reserves. Citizens still know little about the Government Investment Corporation (GIC) and not much more about Temasek Holdings. Temasek in recent years has begun providing some numbers, such as portfolio size and annual quantitative performance figures. That is not enough. For example, Temasek with 350 employees reported $8 billion in administrative expenses for 2009. Typically administrative expenses refers to costs such as salaries, rents, and stationary. But how much of that $8 billion is going to employee bonuses or paper clips or consolidated expenses from subsidiaries, neither parliament nor public has much of a clue. No wonder even establishment journalists like Conrad Raj have joined the call for transparency in Singapore’s sovereign funds.
Following the recent global banking crisis, executive compensation has become a hot topic in regulatory reforms world-wide. Abusively inflated executive compensation was a major reason why CEOs like Lehman’s Dick Fuld took on excessive risk and led their institutions into bankruptcy. This is why countries around the world, from Canada to Switzerland, are emphasising transparency and regulation of executive compensation.
Neither TH nor GIC reveals compensation numbers for top management. So I asked two friends better placed than most to know – a top head-hunter in the finance industry and a senior private equity deal-maker once recruited by Temasek. Their thinking was that the real numbers can be inferred by Charles Goodyear’s flirtation with Temasek. In one form or another, it is likely Goodyear would have made Temasek match his base at BHP — which was GBP3.7 million. In addition, sovereign wealth funds in Asia are known to pay bonuses up to 200% base. Based on those figures, the estimate is that Temasek values its CEO between S$8million to S$24 million, depending on the bonus pay-out. The compensation can be structured in many ways but the final number is probably not too far off. The chairman would have a comparable base as the CEO, but should not enjoy the same bonus arrangements for oversight reasons. I acknowledge that these numbers are highly educated guesses. However, until Temasek and GIC decide they trust Singaporeans enough to reveal the actual numbers, this is the most reasonable estimate we have and a legitimate starting point for the purposes of public discussion.
While those figures look generous to most, salaries at GIC and Temasek are not that lofty compared to large hedge funds and private equity. Then again, compared to most sovereign wealth funds and public funds, S$8 – 24 million for a CEO is high. For example, the CEO of the Norwegian sovereign wealth fund (a fund larger than Temasek and GIC combined) draws a total package of only S$800,000 or between one-tenth to one-thirtieth of what is estimated at Temasek.
This ratio is consistent with the state of inflated compensation amongst Singapore’s top public leaders. The prime minister of Norway makes $286,000 a year, which is one-twelth of Singapore’s prime minister, one-eighth of a relatively minor minister like Vivian Balakrishnan, and probably less than the total earnings of some People’s Action Party (PAP) members of parliament (including MP allowance, day jobs and directorships). This is jarring when, according to 2009 IMF figures, the nominal income of the average Singaporean is less than half that of the average Norwegian and barely a third of those in the Norwegian capital of Oslo.
Could we have missed out one key reason why compensation within our sovereign funds remains mysterious? When the CEO of Temasek is the wife of the prime minister and the daughter in law of the minister mentor (who is also the chairman of GIC), the issue of pay in Singapore’s sovereign wealth funds can be a politically loaded one. Few would be keen to discuss or even enquire into it. In addition to Ho Ching’s package, there is Lee Kuan Yew’s compensation for his role as chairman of GIC and Lee Hsien Loong’s as vice-chairman of GIC . One would dearly wish to be reassured that those roles are ex-officio or in any way uncompensated – which we haven’t been yet. Otherwise, we are looking at millions more in compensation. Throw in the S$7 million political salaries the two Lees already draw, and this family trio could conceivably draw a public pay-check that looks uncomfortably large next to the S$42 million that is the entire 2009 government budget for social assistance to the elderly and disabled. It may be acceptable for public leaders to draw high salaries if that is the result of a robust business decision that is an outcome of a visibly robust due process. But is it robust? Is it visible at least?
Another interesting angle is how the ownership of Temasek and GIC is perceived, an issue that is particularly acute considering the disconnect between political leaders and citizens, and disparities in wealth between rich and poor (even between the median and the rich). Those funds were built by the sweat and tears of today’s Singaporeans, and that of our parents and grandparents. That effort and self-denial resulted in this national inheritance. Sure, we had admirable leadership in those first couple decades but surely the greater merit goes to the unsung Singapore worker for grinding it out. Each of the S$230,000 per head that is the rightful stake of every Singapore citizen generates tens of thousands of dollars in annual returns . This fact is something that the Singaporean scraping by on a median monthly income of S$2,400 does not realise. This is what the kidney patient struggling to pay his weekly dialysis bill does not know. This is what the elderly cleaner existing on $700 a month does not benefit from.
Nobody is seriously suggesting that we write every citizen a S$230,000 cheque but it may make sense for a percentage of annual returns from those funds to be returned to citizens in the form of a monetary dividend or transparent investment into key public goods such as healthcare or childcare. The Temasek Holdings website proudly states ‘our total shareholder return since inception 36 years ago is 17% compounded annually’. So even returning a modest quarter of that rate of return would mean over $9000 annually for every adult Singaporean. This transfer must be visible and transparent to us.
The perception problem is that Singaporeans tend to think of Temasek and GIC as PAP money. However, we need to understand that most in the PAP are not at all well informed about our sovereign wealth funds, including PAP members of parliament and possibly the majority of ministers in the cabinet. Even the late president and PAP stalwart Ong Teng Cheong failed to get a satisfactory answer.
Let’s make this clear — Temasek and GIC belong to the nation. The PAP, as the current elected government, has stewardship over the funds but they are answerable to citizen stakeholders. As our elected leaders, the Singapore parliament has a responsibility to provide a satisfactory level of oversight and governance over these funds. As citizens, we have the duty to know what is going on so this wealth can be optimally used for the benefit of the people and for generations to come.
We must know the real story and numbers for GIC and Temasek. Otherwise, no matter how honest our leaders may have been in the past, we run the risk of future abuses in this shadowy system that will jeopardise our national inheritance. Imagine the tragedy of a national enactment of that old Chinese adage about wealth not surviving past the third generation! In that scenario, we citizens have to bear our share of the blame for allowing our leaders an unhealthy degree of leeway.
We all need to start doing the right thing and get clear answers to these important questions. We owe that to ourselves, to Singaporeans who have come before us and to Singaporeans who will come after us.
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Author’s footnote: There is little publicly available information on this topic, so I welcome all contributors who can improve, correct or add to this article.