3/04/2013

Judge GIC by its long term results


In an interview with the Sunday Times, Ng Kok Song, the retired Group Chief Investment Officer of GIC summed up his views by saying that an organisation like GIC should be judged by its performance over a longer time frame. How long is this time frame is relative and subjective, but definitely not over a year or a handful of years. This kind of view is reasonable in general for a Sovereign Wealth Fund or any funds managed by the fund managers. Investment is a long term process as against gambling or daily trading. The volatility of the assets and equities under management may fluctuate wildly in the short term or even daily when there is a major event or crisis happening. The value of the assets or funds under management could plunge or swing up in response to such events. This is equally true of big institutions, or even the performance of govts. It is thus unfair to wallop a non performing fund over a short interval of time or during a crisis.

Today’s corporate culture and practices are often based on short term performance, or at least the remuneration and reward system is geared towards an annual payout. This has resulted in the management and executives planning and working for instant rewards and instant gratification. And the accounting system and reward packages, bonuses, payouts, handouts, perks, etc etc are all based on short term results or annual results. A good performance in a year could earn the management their life time income. A poor performance in a year could earn them half a life time income. A disastrous performance in a year could earn them multiple life time incomes.

What is the problem? Many fund managers, top management, and even govts, want to be rewarded immediately, on a year to year basis. This is natural as their tenure is short and could be terminated quite quickly. And they all want to be judged over the long term so that their bad performance can be averaged out to look better over time, or maybe a windfall or a lucky streak some years ahead could turn their fortune around. Or they could have left when bad times are here or the bad times that were hidden in the books could not be hidden any longer. The Olympus Camera company is one such example.

Last year, our Govt recorded a once in a life time GDP growth rate of 15%, much higher than any country in the world. And their super world class salaries were given an added boost with super world class bonuses based on this once in a life time growth rate in a year. Like any big institutions, the next few years may end in the red, no growth or minus growth, it doesn’t matter, the big bonuses are already in the bank accounts.

I somehow think the equation or formula is not very right. I thought since performance is best to be assessed over a long term, the remuneration or reward system should also be designed to be paid out over a long term as well. Both will thus average out the performances and the rewards in the long run. Tiok boh?

Why like that one? Still cannot figure out why? Heard of head I win tail you lose? To be reasonable, honest, responsible, accountable and respectable, and to be real, rewards and bonus system of an institution or govt must be in line with the performance assessment system. If the reward is based on immediate payout for the year’s performance, then the measurement must be based on a yearly basis. If not, it is simply screwy.

I like simple logic that every layman can understand.

17 comments:

  1. BBC

    [Swiss referendum 'backs executive pay curbs']

    "The new measures will give Switzerland some of the world's strictest corporate rules.

    The 'fat cat initiative', as it has been called, will be written into the Swiss constitution
    and apply to all Swiss companies listed on Switzerland's stock exchange.

    Support for the plans has been fuelled by a series of perceived disasters for major Swiss companies,
    coupled with salaries and bonuses staying high.

    One of the organisers of the referendum told the BBC she thought the Swiss people agreed with the proposals
    because the gap between rich and poor had become wider."

    http://www.bbc.co.uk/news/world-europe-21647937

    http://www.reuters.com/article/2013/03/03/us-swiss-regulation-pay-idUSBRE92204N20130303?

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  2. You must wonder if a 20year period is reasonable since this is what GIC put forth. The nub of the problem is the lack of transparency. No one outside a few individuals know what the real performance of GIC is. And one of them won`t be around soon to tell you. As for paying the fat cats "claw back" clauses are now a requirement in all UK bankers` contracts to make sure the they are paid judged on a long term basis. You must wonder why the WP, with their corporate law star, did not raise this issue in Parliament.

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  6. Hi Wee Wen, welcome to the blog. I see you have very strong views.

    Leong Sze Hian is also questioning the gap between transparency and accountability. Without transparency, accountability is based on blind faith.

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  7. Rb..are gic n temasick singapore s' national institutions? How relevant are they to Singaporeans..will the sing dollar crumble without them...have they helped combat inflation or indeed..have they contributed to it...how have the Singaporeans benefited...we know the Norwegian swf have helped its citizens pension schemes..what is the purpose of temasick ...apart from selling off iconic assets n making strange bets on equity..it's time for these institutions to stand up n be counted..

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  8. Another rooster talking cock and singing songs.

    Why do I care about long term results when I can't even enjoy the returns right now in my wettest dreams. In any case, long term or short term, the gains do not trickle down to people at the bottom. That is the reality.

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  9. They do not trickle down ? Then where do they get their spend money on wage credit, workfare, hospital subsidies from? They grow on trees? They print $ without gold backing ?

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  10. Why are sinkies concerned with Temasek, GIC and GLC?
    Are sinkies having shares of them?
    And how they fare makes material difference to them?

    Thought in Sin, it is You die your business but if the State is in trouble, You're somehow the cause or part of it.
    Lol.

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  11. Anon 2.45...every year Singapore budget in surplus...implying the govt have been overtaxing its ppl..which fairy tale have you read that gic n temasick been trickling their profits to the ppl by way of subsidies..should any of these institutions even make a penny contribution to ppl's general good...take it from me...there'll be plenty plenty fanfare...

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  12. The world is a better place without all these people that cooked up the accounts and paid themselves obscene amount of bonus. Vote the opposition to stop all these rulig class people from taking advantage of working class people.

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  13. March 04, 2013 2:45 pm - tax payers funded all these things not them thru collections of coe, erp, gst, taxes, duties, inflated housing etc.

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  14. GIC & Temasek make record profits.
    Nothing will be shared with Singaporeans.

    GIC & Temasek lose money.
    GST, COE and HDB price goes up?
    And we will need to import more immigrants?

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  15. Anon 2.45 pm is one that is obviously still believing in fairy tales and having wet dreams of GIC and Temasek shariing its gains with Singaporeans.

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  16. Ng Kok Song is still not giving us necessary details to evaluate GIC performance.
    Any fund manager worth its salt will be able to provide immediately performance results of:
    1. Year to date
    2. 1 Year
    3. 3 Year
    4. 5 Year
    5. 10 Year
    6. Since inception
    Both in their base currency (GIC is Sing Dollar) and US dollar.

    If not available means the Risk Management system is a failure and unrealiable.
    Wow! Do GIC has such a system?

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  17. Hi, just wanted to say, I enjoyed this post. It was helpful.

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    ReplyDelete