Employees losing their retirement funds in company shares similar to the recent Bear Stearns fiasco is unlikely to occur in Singapore.

Bear Stearns employees have been dealt a massive blow to their own stock portfolios following the JP Morgan’s acquisition at US$10 per share, a value that is only one-tenth of what its value in December 2007. This affects employees that have been receiving part of their compensation in company stock and have built their retirement plans into the shares.

According to Kwong Hui-Heng, head of strategic benefits, Watson Wyatt, this scenario is unlikely to happen because many workers in Singapore put their biggest retirement savings plan into CPF accounts. So if companies offer stock options, it becomes another option to earn more money.

One of the ways employees obtain company shares is through incentive schemes such as share option, share grant and performance share. These are most directly linked to the employee's remuneration.

And Kwong believes this helps align the employee's interest with the shareholders. He says, “By paying the employee partly in the company shares, the employee's pay will increase or fall as the share price increases or fall, just like the shareholders' investment to the company.”

For employees who have supplementary retirement savings plans companies sponsored by their companies, they need not worry unduly. Kwong says most of these funds have prudent governance structure with investments managed by professional investment managers. And they maintain Statements of Investment Principles and Objectives (SIPO) which set out guiding principles on how retirement funds ought to be managed.

He adds, “It is common to limit the fund's exposure in any single company share or investment instrument, this includes investing in the company's shares.”