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ICDM : Greater disclosure transparency will facilitate fair and equitable remuneration for directors in Corporate Malaysia

3 Nov 2023

Collaborative review effort between ICDM, Bursa Malaysia and WTW aims to provide greater clarity on process, structure and remuneration levels across industries and market capitalisation.

KUALA LUMPUR, 30 OCTOBER 2023 – The Institute of Corporate Directors Malaysia (“ICDM”), Malaysia’s national Institute of Directors (“IoD”) and the leading advocate for professionalising boards and directors in the country, today launched their first report on “Malaysian Board & Senior Management Remuneration Practices Report”. In collaboration with Bursa Malaysia Berhad (“Bursa Malaysia”) and WTW (formerly known as Willis Towers Watson), the report summarises the review of 176 of Malaysia’s top 300 public listed companies’ (“PLC”) data and 193 completed survey responses, relating to their respective board and senior management remuneration practices. The review sets out to understand in greater detail three (3) key factors: the prevailing industry practices, remuneration levels by industry and company size, and quality of disclosure.

Michele Kythe Lim, President and Chief Executive Officer (“CEO”) of ICDM said, “Effecting the mind-shift within Corporate Malaysia on matters like board appointments and remuneration is critical to ensure Malaysian companies can continue to attract and retain the best directors. Like all talent, one of the key strategies to attract and retain qualified and capable individuals is attractive and equitable remuneration. Whilst 78% of the survey respondents believe that their non-executive directors (“NED”) are adequately compensated for their responsibilities and 89% believe their policies and procedures appropriately reflect the roles and responsibilities, the challenge in right-sizing remuneration requires timely and accurate market industry baselines and benchmarks, as well as the holistic process that considers the overall expectation of the director’s role and responsibilities. This covers benchmarking against peer group, time commitment, scope and complexity, company size and profitability, onerous responsibilities to the fit of the individual’s skills, experience, performance, and qualification. There is no one size fits all.”

Julian Hashim, Chief Regulatory Officer of Bursa Malaysia commented, “Today, many companies struggle with crafting a fair board remuneration package due to the lack of in-depth benchmarking data. This is mainly due to the lack of disclosure and transparency by companies, which makes the data not readily available in a standardised or consistent format. When compared against the recommendations of the Malaysian Code on Corporate Governance (“MCCG”), whilst 100% of the survey respondents have the terms of reference (“TOR”) for their Board Remuneration Committee, only 94% disclosed it on the company’s website. Similarly, whilst 89% have their board remuneration policies and procedures, 26% review them annually while 30% review them every two (2) to three (3) years. Scheduled reviews are crucial for boards to stay on top of their remuneration practices, ensuring alignment with industry and market standards and, better governance. Companies are encouraged to standardise their disclosures to include all components such as board fees, allowances, benefits-in-kind (“BIK”) and other emoluments for boards, plus salary, bonus, other allowances or equity for senior management. The imperative for enhanced transparency is crucial to attain more precise company and industry benchmarks. Ultimately, this will lead to a more equitable compensation for directors.”

To dive deeper into this subject, ICDM hosted a dialogue and networking session on “How much do board members get paid?” The session assembled around 90 senior directors, corporate leaders, governance specialists, business owners and fellow experts to discuss the review findings, expectations, baselines, and benchmarks as well as paths forward to improving the quality of disclosure and transparency to formulate an equitable and effective remuneration evaluation process and model for directors and boards.

Shai Ganu, Managing Director and Global Leader of Executive Compensation and Board Advisory, WTW added, “World over, most corporate governance enhancements begin with stronger disclosures. We hope that the report findings will facilitate more accurate and granular industry baselines that can serve as benchmark references. This can help improve the overall rigour and governance standards for Director fees and senior management remuneration practices. Director fees are trending upwards due to the increasing complexity, time commitments, risk and accountability of non-executive Director roles – and there will be rising demand from stakeholders for improved transparency. This report is timely in providing organisations with further insights into the fee trends for directors. Our intent is for the report to serve as a guide for companies to benchmark their remuneration levels and practices against the market, and help ensure they are competitive, fair, and equitable.”

Other key insights highlighted in the review are:

  1. In general, the total cost of governance (“TCOG”) which refers to the expenses associated with compensating a non-executive director, increases in tandem with the market capitalisation.
  2. The TCOG illustrates a substantial range in director compensation levels across different industry sectors. The top three (3) sectors in the upper quartile of market capitalisation are Financial Services, Telecommunications & Media, and Utilities, while the bottom three (3) sectors are seen in Technology, Construction, and Industrial Products and Services.
  3. Generally, chairperson remuneration consistently exceeds director remuneration by a substantial percentage, with disparities often ranging from 40% to 80%. Sectors such as Property, Energy, Plantation and Healthcare, and Financial Services, had a higher ratio of chairperson to director fee, whereas sectors such as Telecommunications & Media, REITS, Construction and Technology had a lower gap.

Moving forward, ICDM will continue to work closely with boards, directors, regulators, and the broader capital market to enhance board and senior management remuneration practices, especially in supporting efforts to build greater transparency and quality of data to facilitate greater equitability towards a stronger and more dynamic Corporate Malaysia.