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ICDM Unveils Report on Malaysian Board and Senior Management Remuneration Practices

2 Nov 2023

Michele Kythe Lim President CEO of ICDM 1024x681 1

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 has unveiled its inaugural report, titled “Malaysian Board & Senior Management Remuneration Practices Report.”

In collaboration with Bursa Malaysia Berhad and WTW (formerly known as Willis Towers Watson), the report provides insights from the analysis of data from 176 of Malaysia’s top 300 public-listed companies and 193 survey responses, focusing on board and senior management remuneration practices.

The report seeks to gain a deeper understanding of three critical factors: existing industry practices, remuneration levels across industries and company sizes, and the quality of disclosure.

Michele Kythe Lim, president and CEO of ICDM, emphasized the significance of shifting perspectives within corporate Malaysia, especially concerning matters related to board appointments and remuneration.

She underscored the importance of competitive and equitable remuneration to attract and retain top directors. While a significant percentage of the survey respondents believe that their non-executive directors are fairly compensated for their roles, and that policies and procedures appropriately reflect responsibilities, right-sizing remuneration necessitates comprehensive considerations.

This includes benchmarking against peer groups, considering time commitments, scope, complexity, company size, and profitability, among other factors. Lim stressed that there is no one-size-fits-all solution.

Julian Hashim, chief regulatory officer of Bursa Malaysia, highlighted the challenges companies face in structuring fair board remuneration packages due to the lack of robust benchmarking data. The lack of transparency and consistent disclosure by companies contributes to this challenge.

He pointed out that there’s room for improvement in aligning with the Malaysian Code on Corporate Governance (MCCG) recommendations, as not all companies are providing adequate disclosure of their board remuneration committee terms of reference. Scheduled reviews are crucial for maintaining alignment with industry standards.

Companies were encouraged to standardise their disclosures, encompassing all components of remuneration, and enhancing transparency to create more precise benchmarks.

To delve deeper into the subject, ICDM hosted a dialogue and networking session titled “How much do board members get paid?” This session brought together around 90 senior directors, corporate leaders, governance specialists, business owners, and experts to discuss the report’s findings, expectations, baselines, benchmarks, and strategies for improving disclosure and transparency in the remuneration evaluation process for directors and boards.

Shai Ganu, managing director and global leader of executive compensation and board advisory at WTW, highlighted that enhanced corporate governance often begins with stronger disclosures.

The report’s findings are expected to facilitate more accurate industry benchmarks, thus improving governance standards for director fees and senior management remuneration practices. Ganu explained that director fees are increasing due to the rising complexity, time commitments, risks, and accountability in non-executive director roles.

Improved transparency is crucial, and the report is intended to guide companies in benchmarking their remuneration levels against the market for fairness and competitiveness.

Other key insights from the review include:

  1. The total cost of governance (TCOG), which represents the expenses associated with compensating a non-executive director, increases in proportion to market capitalisation;
  2. TCOG varies significantly across different industry sectors. Financial Services, Telecommunications & Media, and Utilities are among the top three sectors with higher director compensation levels in the upper quartile of market capitalization. Conversely, Technology, Construction, and Industrial Products and Services sectors exhibit lower levels; and
  3. Chairperson remuneration consistently exceeds director remuneration by a substantial percentage, often ranging from 40% to 80%. Variations exist across different sectors, with Property, Energy, Plantation, Healthcare, and Financial Services showing higher chairperson-to-director fee ratios, while Telecommunications & Media, REITS, Construction, and Technology sectors exhibit lower gaps.

Moving forward, ICDM will continue to collaborate with boards, directors, regulators, and the broader capital market to enhance board and senior management remuneration practices. Their focus is on fostering greater transparency and data quality to promote fairness and dynamism in corporate Malaysia.

This article was first published in SME on 2 November 2023.