Good earning. I also want to be NED one day!
Are Malaysia's non-executive directors' overpaid?
PETALING JAYA: KPMG's pioneer annual study this year on non-executive directors' (NEDs) profile, practice and pay revealed that they were remunerated on average RM89,000 a year and that half of the NEDs' package comprised fees with allowances, other emoluments and benefits-in-kind making up the balance.
The study was based on the review of the latest annual reports (financial years 2008 and 2009) of the 300 largest companies (by market capitalisation) on the main market and top 30 companies on the ACE market. The study took four months and was completed in July.
KPMG partner (audit) David Lim said the indepth study provided some interesting statistics and information on the current status quo of NEDs.
"For instance, remuneration of an NED in the finance sector of government-linked companies (GLCs) averaged RM218,000 per annum and for a non-GLC NED it was RM146,000 per annum," he said at media briefing on the NED study yesterday.
However, Lim noted that the remuneration of an NED at a typical public listed company (PLC) that was non-finance, non-GLC and locally owned averaged RM72,000 a year.
He also said financial institutions led in NED payout by a wide margin, compared with the broader market.
Moreover, he said the remuneration package of an NED who was the audit committee chair was 19% more than his fellow committee member.
On the profile of NEDs, Lim said their ages ranged from 27 to 89 for males, and 30 to 74 for females and the average length of service was six years. He added that 50% were over 50 years old.
The study also showed that female NEDs comprised only 6% of the total compared with about 15% in developed countries like Australia.
The local NEDs attended six meetings annually and around 45% of the NEDs sat on one board and 43% on two to four boards.
"Hence, if an NED serves on two boards, his total remuneration will be about RM144,000 per year," Lim said.
KPMG partner (internal audit, risk and compliance services) Lee Min On said with regulators and other stakeholders playing an increasingly bigger role in the corporate governance process of PLCs, the role of the NED in providing an effective "check and balance" to the executive directors could only grow in importance.
"In tandem with the added responsibilities being given to NEDs, one can expect the remuneration package to commensurate with the added risks and responsibilities," he said.
KPMG partner (audit) Mohamed Raslan Abdul Rahman said an NED must have the capability to fathom the intricacies of financial reporting and the ability to evaluate transactions and proposals from a business point of view.
Raslan said as NEDs were required to commit to an increasing amount of time for each company, this raised another pertinent question: How many NED positions could an individual realistically expect to hold?
He said the KPMG study also showed that the level of disclosure on directors' remuneration, by name and amount, was still discouragingly low. For example in one instance, not only were names obscured, bands of up to RM300,000 were used and not RM50,000 as prescribed.
Raslan said another observation was that no disclosure was made or required for directors' professional indemnity insurance, especially for NEDs who spent less time on the company's affairs, compared with their executive counterparts, but were exposed to the same level of risk.
"On this note, NEDs may wish to explore the need for directors and officers liability insurance," he said.
Raslan also noted there were NEDs who were in substance "de facto executive directors" and held executive functions at the subsidiary company level. "These NEDs may distort the board composition, thereby diluting their check-and-balance role," he said.
Raslan also said as allowances and other forms of payments (save for share-based payments) did not require shareholders' approval, this opened the opportunity for various "benefits" to be lumped under allowances.
Via The Star
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