UNDER the Malaysian Code of Corporate Governance (MCCG), public listed companies must ensure they remunerate directors and senior management in a manner that is consistent with the company’s interest in attracting and retaining the right talent on its board and senior management.

Remuneration policies and decisions are expected to be transparent and independent, while taking into consideration the demands, complexities and performance of the company as well as skills and experience required.

The policies and practices should reflect the different roles and responsibilities of non-executive directors (NEDs), executive directors (EDs) and senior management.

Little Traction

Malaysian corporates are typically shy to disclose remuneration packages, especially for senior management.

According to the Securities Commission Corporate Governance Monitor 2022, the adoption of practices related to the disclosure of senior management remuneration remained disappointingly low. Only 22% of listed companies disclosed senior management remuneration in bands of RM50,000 or by the exact amount.

It is challenging to make comparisons of companies within the industry as the information is not disclosed in a standard format. Nevertheless, there has to be some form of benchmark on what is “fair compensation”.

The Institute of Corporate Directors Malaysia (ICDM) in its “Malaysian Board & Senior Management Remuneration Practices Report” surveyed listed companies on their respective remuneration practices. The survey, between November 2022 and February 2023, saw some 176 respondents, across multiple sectors.

The result, which was heavily tilted towards companies with a market capitalisation of less than RM5bil (76% of sample size) and net profit of up to RM500mil (74% of sample size), showed that the median NEDs’ remuneration across sectors is RM113,750 a year. Of this amount, 79% are related to board fees, 14% allowances paid, 1% benefits-in-kind, and 6% other emoluments.

Taking into consideration inflation and adjustments over the past year, it may be concluded that the overall remuneration for Malaysian NEDs is about RM120,000 a year or RM10,000 a month.

As the sample size is rather small, there is bias in the data points as most INEDs are paid between RM5,000-RM10,000 a month for Main Market listed companies and RM3,000-RM5,000 per month for ACE Market listed companies.

In larger companies with market capitalisation exceeding RM2bil, INEDs are paid much more and could hit RM20,000-RM30,000 per month, especially among financial institutions.

Regional Comparison

Based on the Singapore Directorship Report 2023, 77.3.% of independent directors (IDs) and 67.6% of non-independent, non-executive directors (NI-NED) are paid below S$150,000.

According to the details of the remuneration bands, 42% and 35% of ID and NI-NED earn between S$100,000 and S$150,000, while 16% and 18.1% earn less than S$50,000.

There are 19.3% of IDs and 14.5% of NI-NEDs whose compensation is within the mid-range of S$50,000-S$100,000. Singapore IDs on average earned approximately S$100,000 per year based on the mid-values of various remuneration bands.

In Thailand, a survey by the Thai Institute of Directors Association in 2020 shows NEDs and EDs received between 740,000 and 690,000 baht annually.

Adjusting for inflation and adjustments, NED’s remuneration probably would have reached 850,000 baht last year.

The Philippines saw a median salary of 850,000 pesos based on a recent report released by the Institute of Corporate Directors.

However, the interesting part of this report was that it also showed the wide range of remuneration, which was as low as 500,000 to as high as 2.4 million pesos.

The best way to compare the above data is to normalise the findings using the Purchasing Power Parity (PPP) factor.

For Singapore, this would mean remuneration of S$100,000 translates to about RM177,000 while for Thailand and the Philippines, it is RM114,000 and RM63,000 respectively. Hence, Malaysia’s RM120,000 for the companies that were surveyed shows that we are almost on par with Thailand, rather lucrative when compared with the Philippines, but only two-thirds that of Singapore.

What’s Fair Remuneration?

According to ICDM, there is room for improvement when it comes to remunerations paid to INEDs by Malaysian companies. This is mainly driven by the higher responsibility as well as having the right talents.

ICDM adds that the shortfall in remunerations may be attributed to no proper benchmarking and affordability issues.

Remuneration packages for INEDs should take into consideration what they bring to the board, and not forgetting the financial health of the company.

There are no perfect formula on how INEDs should be remunerated, mainly due to the complex nature of the role.

Nevertheless, the fees should take into consideration the fiduciary duties under the law and the duty of care that is demanded, the nature of the industry (there is a greater demand for regulated industries), the size of the company in terms of revenue, complexities of the listed corporate structure, and profitability of the company.

Not a Retirement Job

Being an INED is not a walk in the park and certainly not a retirement job. It is also not a part-time job as there are clear responsibilities and time commitment. Understanding board issues, keeping up with the dynamic nature of business, regulatory and legislation demands, are key to being an effective board member.

With issues related to environment, social and governance, climate change, cybersecurity, artificial intelligence and social media, board members today need to be an all-rounder to be able to contribute positively. The bottomline is that directors should be paid what is deemed fair compensation, taking into consideration the value of their contribution given the risks they have to navigate through.

The article was first published by The Star.

Photo by PiggyBank on Unsplash.