Malaysia/Asia: How much should chiefs of government linked companies be paid?

Monday April 1, 2013

How much should chiefs of government linked companies be paid?

Corporate Notes by Gurmeet Kaur

THE debate continues on how much top directors of government-linked companies (GLCs) should be paid. GLCs here are key drivers of the economy and on many occasions, they are substantial investors in the financial markets. But the one key feature is that GLCs are ultimately owned and controlled by the Government.

So the remuneration paid to GLC chiefs can be a touchy issue as shown during Bursa Malaysia Bhd’s shareholder meeting on Thursday. The seemingly high annual remuneration of RM5.54mil paid to its chief executive officer Datuk Tajuddin Atan in 2012 grabbed the attention of minority shareholders.

They wanted the board to explain why Tajuddin’s pay last year had more than doubled from 2011, considering the exchange’s performance was “not impressive”.

To be fair, Tajuddin was appointed to the top post at Bursa on April 1, 2011, meaning his remuneration for the year (amounting to RM3.55mil) covered a nine-month period. So Tajuddin’s salary for 2012 is actually only a 17% increase against a pro rated 2011 salary.

Still, his remuneration is far greater than his predecessor’s. In 2010, former Bursa CEO Datuk Yusli Mohamed Yusoff was paid RM1.54mil.

Then again, Tajuddin’s pay package does not surprise some recruitment specialists who reckon the position of a stock exchange head is perhaps the most coveted in Corporate Malaysia.

Bursa did not give a breakdown of Tajuddin’s RM5.5mil package, which does not include his share grant. It is interesting that Bursa had given its CEO a share grant last April before he had delivered any key performance indicators (KPIs).

So how are other stock exchange chiefs remunerated? Across the causeway, the Singapore Exchange Ltd dished out a remuneration package totalling S$3.901mil for its head honcho Magnus Bocker in 2012. The bulk of Bocker’s remuneration was in the form of a S$2.20mil bonus.Executive payouts at GLCs have risen in the past few years after the Government initiated the GLC Transformation Programme in 2004 an obvious expectation, say many industry observers, as the Government had recruited top talent from the private sector to helm these companies.

GLCs like CIMB Group Holdings Bhd, Axiata Group Bhd and Malayan Banking Bhd have done well with the infusion of “entrepreneurial spirit”.

On the other hand, there were some GLCs that were unable to meet their top-line KPIs, but had seen remuneration rises for board members. In terms of efficiency levels, GLCs have some way to go to match that of non-GLCs, say analysts.

With a performance-based culture becoming increasingly important, companies need to demonstrate a clearer and stronger link between executive remuneration and company performance typically gauged by earnings growth and shareholder return.

Going forward, with more state-owned entities expected to undergo divestment, as in the cases of Felda Global Ventures Bhd and IHH Healthcare Bhd, there will surely be greater demand for skilled talent.

But exactly how much is an “appropriate” remuneration is a topic open for discussion. It would be good if companies go the extra mile to shed more light on the basket of items that go into determining boardroom remuneration. More often the disclosure of this in the statements of corporate governance read like a standard template.

It is worth noting that the European Union has introduced a new law limiting bonuses to the equivalent of one year’s salary or two years if shareholders specifically approve. The people of little Switzerland have gone a little further by voting in a referendum to outlaw golden handshakes and parachute deals and bonuses for managers involved in takeovers or mergers. It also gives shareholders a binding vote every year on executive pay.

● Deputy news editor Gurmeet Kaur believes that with the global economic recovery still fragile, GLCs would be tested on the strategies put in place by their boards this year.