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Comparable and transparent disclosures of board remuneration needed, says ICDM

31 Oct 2023

Michele Kythe Lim President CEO of ICDM 1024x681 1
Michele Kythe Lim, the president and chief executive officer of the Institute of Corporate Directors Malaysia.

KUALA LUMPUR (Oct 31): A more standardised and complete disclosure of board remuneration is needed in Malaysia to attract and retain board talent, according to a new report by the Institute of Corporate Directors Malaysia (ICDM).

The report, “Key insights into Malaysian board and senior management remuneration practices 2023”, is the largest and most comprehensive report done on this topic, said the ICDM. The study, done in collaboration with Bursa Malaysia Bhd and WTW, aims to investigate whether board remuneration is equitable and aligned with policies and best practices, and how similar companies are renumerating their boards.

“The lack of transparency in remuneration practices we found during our research is a matter of concern. When there is a lack of transparency, it erodes trust and confidence, not only within the organisation but also among stakeholders,” said Michele Kythe Lim, the president and chief executive officer of the ICDM, at the media briefing.

“One of the issues that we faced is the fragmentation of information related to remuneration practices. This lack of consistency in reporting makes it difficult for stakeholders to understand, compare and evaluate practices across different companies.”

The report highlights three key factors: prevailing industry practices, remuneration levels by industry and company size and quality of disclosure. It is based on a survey of 193 Malaysian companies and data extracted from the corporate governance report of 176 public listed companies.

While 100% of the survey respondents have the terms of reference for their Board Remuneration Committee, only 94% disclosed it on their company websites. Additionally, while 89% of surveyed companies have board remuneration policies and procedures, only 26% review it annually and 30% review it every two to three years.

How this information is reported is not standardised or consistent, which makes it difficult to create accurate industry baselines and benchmarks.

“Today, many companies struggle with crafting a fair board remuneration package due to the lack of in-depth benchmarking data,” said Julian Hashim, the chief regulatory officer of Bursa.

The average median remuneration for non-executive directors (NEDs) across sectors is RM113,750, with 79% comprising of board fees, followed by 14% in allowances. Seventy eight per cent of respondents feel that NEDs are paid adequately for their responsibilities. The sectors with the highest median remediation are financial services, telecommunications and media, and utility.

Meanwhile, chairperson remuneration consistently exceeds director remuneration, with disparities ranging from 40% to 80%. The ratio of chairperson to director fees is the highest in the property and energy sectors.

Paying a fair remuneration to directors can attract and retain talent. Disclosing this transparently is also key for good corporate governance.

“If I’m a shareholder, and I have elected some board members to act in my interests, it is a minimum requirement that I should know how much they will be paid for that service that they provide. Director fee disclosures, in most jurisdictions, is usually is low-hanging fruit,” said Shai Ganu, the managing director and global leader of executive compensation and board advisory at WTW.

According to the report, some trends to look for going forward is the incorporation of environmental, social and governance performance in board remuneration, and introduction of share ownership as part of directors’ compensation.

This article was first published in The Edge Malaysia on 31 October 2023.