Remuneration for non-executive directors in Malaysia is on the rise

23 April 2018 Authored by Consultancy.asia

Malaysian companies, under intense pressure to innovate and compete globally, are handsomely rewarding experienced non-executive directors, a new report finds.

Malaysia’s class of Non-Executive Directors (NEDs) are reaping the financial benefits of ever greater expectations being placed on their shoulders. A new KPMG report finds that NEDs operating in the country’s bustling financial and government services sectors have enjoyed a sharp rise in fees over the past eight years.

Average remuneration has risen to RM162,000 per annum among the Bursa Malaysia’s top 300 largest listed issuers. Honing in on the Bursa’s top 30, KPMG found that fees almost triple, as median remuneration now stands at a lofty RM467,000.

Other highlights of the report include the revelations that, among the pool of 1,815 NEDs surveyed, just 14% were female, a large majority (68%) of the NEDs were independent operators, and a slight majority of 52% slotted into the 61-75 age bracket. Remuneration packages were chiefly fees (78%) and allowances (19%). Benefits, including cars, utilities and insurance, comprised 3% of the average deal.

The population and the results

In releasing its report on ‘Non-Executive Directors Remuneration in Malaysia’, professional services firm KPMG conducted its most in-depth research into NED fees in Malaysia since the release of similar analysis in 2013. As one of the Big Four auditors, KPMG said its consistent interest is part of a greater goal of promoting good corporate governance in the South East Asian country.

KPMG’s 2009 report on NED remuneration in Malaysia found that the specialist class earned average fees of RM89,000 from the Bursa’s top 300 issuers. By 2013, the average had shot up by 37% to RM122,000. The jump to 2017’s RM162,000 represented a similarly large 33% increase. Since the first report, NED remuneration has witnessed a compounded annual growth rate of 8% that shows little sign of slowing down.

Pay-outs were highest in the finance sector, which accounted for 12 of the top 30 spots. NED remuneration at Malayan Banking Berhad averaged RM852,000. At the Malakoff Corporation, a water and power producer ranked 30th, NED pay-outs were double the average. 

Top 10 players

Bang for their buck

With a quickly growing, resilient and highly diversified economy, Malaysia is on track to securing High-Income Status, as measured by the International Monetary Fund. KPMG analysts suggest that, as the country edges closer to achieving its goal, the public interest imperative in successful finance and public sector performance has encouraged NED fee growth.

Johan Idris, Managing Partner of KPMG in Malaysia, posited that a “relentless pressure to innovate” to compete in a ruthless and dynamic global economy forced companies to rely heavily on NED expertise.

“In the face of such market dynamics, non-EDs are expected to be more vigilant and become drivers of businesses. To play a more constructive and forward-looking role, they may have to expend more time and engage onfield to have a more tangible knowledge outcome.”

Equipped with a deep specialist tool kit, NEDs can command premium fees in an era and region where firms in all sectors are scrambling for expertise, Idris continued. The tide flows both ways, he stressed, with both independent and government-linked companies (GLCs) expecting concrete results and sober commitments from NEDs. Flexibility is set to be replaced with scrutiny as the price for higher pay.

KPMG’s Head of Risk Consulting in Malaysia, Khaidzir Shahari, said this evolution in work ethic was reflected in the number of NEDs taking membership on more than one board committee within a single listed Bursa issuer. Almost two thirds (64%) now sat on multiple boards; a rise of 12% on 2013.

Responsible yet responsive 2013 2017 leadership

Tighter corporate governance regulations would, suggested Shahari, see more committees established to oversee both remuneration and risk management. NEDs can expect their responsibilities and time commitments to continue to increase, concurrently with their remuneration. 

“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,” he said.

Future KPMG analysis is projected to move deeper into NED turf. In the report’s preamble, Idris noted that controversy in Malaysia and elsewhere over director remuneration was now a fact of life. Whether press uproar was fair or accurate was immaterial from a consultancy perspective. A ‘ripple effect’ would see NED remuneration confronted with the same scrutiny afforded to executive director pay, he argued.

Kasturi Nathan, KPMG’s Head of Governance & Sustainability in Malaysia said that the auditor would advise companies to get ahead of the curve and present early disclosures of full directors’ remuneration packages for shareholder approval.

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