IN essence, according to Section 230(1) of the Companies Act, 2016, fees and any benefits payable to the directors of a listed company and its subsidiaries shall be approved at a general meeting.
The section basically makes it legally binding for companies to table resolution in relation to fees and benefits payable to all directors of a listed company. From this, there are few important definitions that needs to be understood.
First, the section only refers to fees. It does not refer to other emoluments or remunerations enjoyed by directors of companies. Second, it also does not differentiate whether the director is an executive director (ED) or non-ED (NED), nor does it differentiate between an independent and a non-independent director. As we know, the annual report of any listed company basically explains the amount of remunerations paid to directors and there are few items that make up the total remuneration of a director.
Let’s take an example of a listed company, Tenaga Nasional Bhd (TNB). The utility company has 10 directors based on its 2018 Annual Report.
Out of this 10, one is an ED and nine others are NEDs. Five are independent directors while five others are non-independent directors. In terms of their remunerations, all the directors are given several types of remunerations and they include directors’ fees, meeting allowances and benefits-in-kind.
In addition, the ED enjoys emoluments, which is defined by TNB in its annual report as contribution to the EPF, bonus, car allowance, flexi benefits, long-term incentive plan and gratuity. The ED’s total remuneration for FY2018 was RM11.5mil, of which RM8.7mil was in the form of emoluments. For the other eight NEDs, (excluding one director that was only appointed in March 2019) the total remunerations amounted to RM2.35mil for 2018.
Now, lets look at the agenda of TNB’s annual general meeting (AGM). Out of the eight agendas that were tabled at the AGM, three were related to directors’ remunerations. Agenda No. 4 called for shareholders to approve payment of fees to NEDs amounting to RM2.06mil for FY2018. Agenda 5 was related to payment of fees to NEDs of RM20,000 per month and non-executive chairman of RM30,000 per month with effect from Jan 1 2019 to the next AGM date. Agenda 6 was in respect of payment of benefits (other than fees) to the NEDs amounting to RM2.26mil from the date of the AGM to the next AGM.
Reading from above, it is very clear that an AGM to approve directors’ fees and benefits is transparent and it allows shareholders to vote for it to ensure that the company is served by not only a competent board but also a board that is rewarded for its time and effort.
Wait a minute! Where was the approval for payment of emoluments to the non-independent ED? The answer – None!
While a corporate board today follows strictly the written law when it comes to fees and benefits, corporates are getting away paying exorbitant amounts to their ED, mainly in the form of salaries and bonuses or emoluments, and these are left unchecked by shareholders.
Another example is Genting Malaysia (GenM). In its last AGM notice, the resolution related to directors’ fees to be approved by their shareholders amounted to RM1.21mil, while for benefits, the resolution was mainly on meeting allowances as well as other benefits. GenM as at Dec 31,2018 had three non-independent EDs and seven independent NEDs (one was only appointed on Dec 3 2018). Other than meeting allowances and fees, which is paid to all directors, non-independent EDs enjoyed salaries and bonuses (more than RM50mil in total), a defined contribution plan (more than RM10mil), other short-term employee benefits (about RM420,000), an employee share scheme (almost RM34mil) and benefits in kind (RM1.8mil).
While some of these may have been approved by shareholders before (especially the employee share scheme), shareholders do not have the benefit to scrutinise the largest amount being paid to their directors – salaries and bonuses. Of course we all know now that the chairman and the chief executive has taken a voluntary pay cut at the last AGM to the tune of 20% but the fact of the matter remains his remuneration was not a resolution that was tabled at the AGM.
Even in AIRASIA’s case, a similar observation can be made. In its last AGM, resolution 2 called for shareholders to approve the NEDs’ remunerations in relation to their fees amounting to RM262,500 per annum and committee fees, which ranged between RM35,000 to RM75,000 per annum. In AirAsia’s annual report, details of other form of remunerations are disclosed and this include salaries and bonuses amounting to RM38.3mil to their two EDs.
As investors and shareholders, it is likely that whatever is paid to the ED in the form of salaries and bonuses will be approved by shareholders but the issue here is why isn’t there enough transparency for salaries and bonuses to be paid to all EDs and scrutinised by shareholders.
After all, if Felda Global Ventures’ shareholders felt the directors were indeed overpaid for the poor performance of the company, shouldn’t all directors’ remunerations be subjected to shareholders approval? Or is it that Section 230(1) of the Companies Act is not strong enough to encompass all forms of payments made to directors and not just fees and benefits or are companies circumventing Section 230(1) to avoid public scrutiny by paying their EDs’ salaries and bonuses or emoluments that don’t fall under the legal framework?
The issue of CEO and directors’ remunerations is hotly debated issue among investors not only in Malaysia but globally. Even in Malaysia’s case, the CEO’s pay has risen substantially and there is pressure to reduce the gap between the median pay of an employee and amount paid to a CEO or an ED. In certain companies, this gap is now at more than 300x, which is totally insane when we have minimum wage at RM1,100 and median wages of less than RM2,200 per month. It is time for Malaysia to act to reduce this gap and one of the first steps is to raise minimum wage to at least RM1,500 by next year and second step is to provide guidance as to the limit as to how much should a corporate’s top executives be paid in relation to the median wage of a company’s employees.
For listed companies, it makes a mockery of an AGM when approval is required to pay independent directors some measly RM30,000 or RM60,000 per annum (or RM2,500 to RM5,000 per month) when other directors walk away with millions and are not scrutinised by all shareholders.
After all, all directors owe a duty to shareholders equally and are jointly liable in the management of the affairs of the company. So why are directors, whether independent or otherwise, not scrutinised equally when it comes to remunerations? Time for greater transparency and perhaps even an amendment to Section 230(1) is needed to make it compulsory that all forms of remunerations to directors must be approved by shareholders and not just fees and benefits. Its time for shareholders to have a say on all forms of remunerations paid to all directors and not just NEDs.