Insight - Remuneration scrutiny

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THE 35th president of the United States, John F Kennedy, once said that “no president should fear public scrutiny of his programme – for from that scrutiny comes understanding; and from that understanding comes support or opposition and both are necessary”.

As for corporate directors, it is that time of the year when they are placed in a fishbowl of scrutiny. Indeed, the annual general meeting season has just concluded for many companies and board members were held to account by shareholders.

There is an increased level of scrutiny when it comes to remuneration of directors, as parallels will be drawn on the rewards accorded to directors in the form of remuneration versus that doled out to shareholders in the form of dividends and appreciation of share price.

In Malaysia, there has been a recent brouhaha on the increase in directors’ remuneration across several government-linked companies (GLCs). Stakeholders from all walks of life have weighed in, with many expressing their dismay and objection.

KPMG Kasthuri Nathan

To put it satirically, when activists clamour to see the payroll, it is no longer about transparency or matching risk and rewards – they literally want to see the pay roll down the cliff.

Notwithstanding the headline grabbers on the exponential increase in the remuneration of directors, there are also cases whereby the purported increase in non-executive directors’ remuneration is only a reclassification of remuneration constituents with benefits being shifted as cash-based fees and meeting allowance.

This is usually the case for the board chairmen of GLCs and other leviathans who have historically been bestowed with an array of benefits.

An analysis by KPMG Management & Risk Consulting Sdn Bhd on directors’ benefits in corporate Malaysia revealed that it is commonplace for non-executive chairmen of GLCs to be accorded with benefits such as a car and driver, leave passage, mobile phone allowance and club memberships.

Some of these companies even accord their non-executive chairmen with rather unconventional benefits such as tenure-linked gratuity payment, security services, duty allowance, corporate credit cards and even black tie or outfit allowance.

It should be noted that an excessive concentration of business-related benefits including the inordinate provision of office utilities may incongruously encourage non-executive directors, including the chairmen, to be operationally-minded.

The trickle-down consequences in this regard could be deleterious, especially given that corporate Malaysia is not devoid of examples involving exercise of executive powers by non-executive directors.

Operational focus and micromanagement by non-executive directors would invariably disrupt workflow and the inherent check and balance process in the company.