KUALA LUMPUR (March 13): The huge disparity between the remuneration of executive directors (EDs) and that of independent non-executive directors (NEDs) in Corporate Malaysia must be addressed to ensure higher quality and independence, according to the Institute of Corporate Directors Malaysia (ICDM).
ICDM president cum chief executive officer Michele Kythe Lim said in light of recent corporate scandals in Malaysia, questions were raised on whether corporates are attracting the right talent as independent directors, and adequate compensation plays a key role in such matters.
Lim pointed out there is a misconception in the Malaysian corporate world that all directors are paid handsomely.
“The reality is that EDs are paid quite well and without going through shareholders’ approval, whereas independent or NEDs are not paid as much, but their fees get (has to be) approved by shareholders,” she told reporters on the sidelines of a conference.
“All their responsibilities are the same, under the Companies Act, but the pay is quite different. And we are trying to ‘rightsize’ that imbalance,” said Lim, who is a trained lawyer.
According to the body, which was set up in October last year to enhance professionalism and effectiveness of the corporate directors in the country, there are a total of 8,000 EDs and NEDs in some 900 public-listed companies.
Average pay per NED ranges from RM150,000 to RM200,000 per year, and could go up to between RM300,000 and RM400,000 for NEDs at companies that are larger in scale, according to Willis Towers Watson ED and head of HR Advisory for Malaysia, Tan Juan Jim.
Willis Towers Watson managing director of global practice leader, executive compensation Mark Reid highlighted that “rightsizing” of the pay gap between EDs and NEDs must be made with awareness that NED fees should be kept simple and non-performance related to avoid any conflict of interests.
“Getting that balance right between enough to be appropriate, and not so much that independence is compromised, is important,” Reid stressed.
The Malaysian Code on Corporate Governance 2017 stipulates that half of the board members of Malaysian companies should be made up of independent directors.