AS the director of a company, one is liable for the governance, strategy and operational decisions. The onus of ensuring a company is profitable while running its business ethically falls on them. But does their salary and other remuneration makes it worthwhile for them to take up the role?
Focus Malaysia in a Jan 2014 report expected the fees for non-executive directors of listed companies to spike as new legislations have put greater demands on them to perform their duties well, failing which they face severe penalties.
One such law introduced most recently is the Malaysian Anti Corruption Commission’s section 17A of Act 2009 which came into force in June 2020. It holds company directors responsible for any corrupt act carried out by its employees.
On top of the regulations, shareholders, lenders, and regulators are expecting non-executive directors to provide the company’s management with sound advice that is in the best interests of the business.
These has been said to cause top executives shunning the post, thus resulting in a shortage of non-executive directors in the country, which in turn may raise remuneration amount offered to them.
The situation is worsened by a Bursa Malaysia Listing Requirements that limited an individual’s directorships to five instead of 10, the report said adding listed companies were facing a shortage of directors with the necessary skills to take up oversight roles in their companies.
The Edge in a Nov 2019 report stated that corporate executives were increasingly not willing to take up fiduciary duties, especially with the smaller fees.
According to the report, a non-executive director (independent director) told the paper that low remuneration coupled with harsh penalties were putting many people off from taking up the role.
“The onus on independent directors has increased over the last five years, so much so that those who actually blow the whistle often have a large interest in the firm. They have a lot to lose if they do not flag questionable deals,” the reported was quoted as saying.
In the same report, a former independent director had said that non-executive directors could face legal action by shareholders for failing to protect their interests.
Early last year, it was also reported that as per Institute of Corporate Directors Malaysia (ICDM) president Michele Kythe Lim’s statement, non-executive directors were not paid as much and their fees had to be approved by shareholders.
Echoing Focus Malaysia’s report, Salary expert.com has recently estimated salary potential for non-executive director and vice chairman to increase 21 % over five years to RM341,164 by 2025.
Taking into account the impact of Covid-19 impact, the portal has put an average salary of an entry level non-executive director & vice chairman with one to three years of experience at RM176,146, while a senior level non-executive director and vice chairman with more than eight years of experience earned an average salary of RM461,556.
Meanwhile, consultancy.asia, in its April 23, 2018 report had said that Malaysia’s class of non-executive directors were reaping the financial benefits of ever greater expectations being placed on their shoulders.
The portal, citing a KPMG report, said average remuneration of non-executive directors had spiked to RM162,000 per annum among Bursa Malaysia’s top 300 largest listed issuers and the fees almost tripled for Bursa Malaysia’s top 30.
The KPMG report also revealed that among the pool of 1,815 non-executive directors surveyed, just 14% were female, a large majority or 68% of the non-executive directors were independent operators, and a slight majority of 52% slotted into the 61-75 age bracket. Remuneration packages were mainly fees (78%) and allowances (19%). Benefits, including cars, utilities and insurance, comprised 3% of the average deal.
Consultancy.asia quoted KPMG Malaysia managing partner Johan Idris as saying: “A relentless pressure to innovate” to compete in a ruthless and dynamic global economy forced companies to rely heavily on non-executive directors’ expertise.
“In the face of such market dynamics, they 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 on field to have a more tangible knowledge outcome,” he said.
Johan further noted that non-executive directors could fetch premium fees in an era and region where firms in all sectors were scrambling for expertise. – Sept 23, 2020
