PETALING JAYA, 5 February 2018 – According to a report by KPMG in Malaysia (“Report”), the average remuneration for each non-executive director (“NED”) is RM162,000 per annum for the top 300 largest listed issuers on Bursa Malaysia, by market capitalisation. This represents an increase of 33% from the 2013 results of RM122,000 per annum, which itself is a 37% increase over the first Report published in 2009 (RM89,000 per annum).
With the third iteration of the Report now across an eight-year horizon, it is noted that NED remuneration has increased at a compounded annual growth rate of 8% per annum over this period.
The Report titled ‘KPMG Report on Non-Executive Directors’ Remuneration 2017’ revealed that government-linked companies (GLCs) and companies in the financial sector lead the way on NEDs’ remuneration. The Report suggested that the remuneration pay-out in GLCs and companies in the financial sector are ahead of the curve on grounds of their highly regulated operating environment and the public interest imperative inherent in them. It also shows that fees remain the preferred form of remuneration (78%) followed by allowances (19%) and benefits-in-kind (3%).
Datuk Johan Idris, Managing Partner of KPMG in Malaysia, noted a number of factors influencing the steady rise in NED remuneration.
“The rising expectations, responsibilities and commitment assumed by an NED have increased their remuneration and these are further accelerated against the intensifying demands of globalisation, emergence of novel technologies and the relentless pressure on companies to innovate,” he said.
In light of the shrinking pool of NEDs with specialised skills, Datuk Johan opined that the possession of niche skill sets commonly result in NEDs commanding a premium in terms of their remuneration package.
According to Mohd Khaidzir Shahari, KPMG’s Head of Risk Consulting in Malaysia, a notable fact that jumped out from this study was the number of NEDs occupying membership in two or more board committees of any one single listed issuer has increased in 2017 (64%) compared to 2013 (55%).
He added: “Given that the Malaysian Code on Corporate Governance (MCCG) calls upon companies to establish dedicated remuneration and risk management committees for more focused oversight on relevant matters, it would be reasonable to expect the responsibilities, resultant time commitment and accordingly, the remuneration of NEDs to increase in the coming years. It would also be interesting to discover if NEDs who hold directorships in multiple listed issuers are able to keep up with these rising expectations.”
Transparency – moving the needle
In recognising the benefits of greater transparency, Bursa Malaysia Securities Berhad has now mandated the disclosure of directors’ remuneration on a named basis and by the exact amount for the listed issuer level and group level. The Report indicated that prior to the introduction of the amended Listing Requirements, only 21% of the listed issuers assessed have voluntarily disclosed directors’ remuneration on a named basis and by the exact amount in the annual report.
Kasturi Nathan, KPMG’s Head of Governance & Sustainability in Malaysia elucidated that detailed disclosures on directors’ remuneration should transcend beyond the circumference of annual report to also be extended in the resolution contained in the notice to general meeting which seeks for shareholders’ approval on fees and any benefits payable.
Kasturi added that directors and senior management’s remuneration policies and procedures disclosed on a company’s website pursuant to the MCCG should be meaningful in order to allow stakeholders to make an appreciable link between the remuneration framework and the objectives of the company.
“As a whole, the slew of reform measures introduced in recent years aims to enhance transparency, which will certainly help to reduce information asymmetry in the market and encourage a culture whereby remuneration is anchored to performance and commensurate with the contribution stemming from skill sets and industry knowledge,” opined Kasturi.
A copy of the Report can be downloaded via the KPMG Malaysia Mobile App (IOS and Android) or from www.kpmg.com.my/nedreport.
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