Yawning chasm between GLC and non-GLC bank CEOs

  • Analyst Reports
  • Saturday, 30 Mar 2019

THE remuneration gap between chief executives of banks that are owned by government-linked investment arms (GLC banks) and those controlled by the private sector has gotten bigger.

As one goes through the latest annual reports of banks, the salaries of Tan Sri Teh Hong Piow and Tan Sri Tay Ah Lek stand tall compared to their peers in the sector.

Teh, who is the major shareholder of Public Bank with a 23.5% stake and does not hold any executive position in the third largest financial institution of the country, received RM42.39mil last year. It is mainly from “other emoluments”, which can mean anything from pension to medical benefits.

The pay-out to Tay, who is the managing director and chief executive of Public Bank, is even more interesting. His bonus portion alone for 2018 came up to RM19.97mil.

It is just RM2.83mil short of the total remuneration package received by the CEOs of Maybank, CIMB Group and RHB Bank altogether.

The total remuneration package, which includes basic salaries, deferred and non-deferred bonus, share options, retirement benefits and other benefits-in-kind paid to Datuk Abdul Farid Alias of Maybank, Tengku Datuk Seri Zafrul Abdul Aziz of CIMB Group and Datuk Khairussaleh Ramli of RHB Bank for 2018 cumulatively amounted to RM22.79mil.

Tay’s total package for his responsibilities in managing the third largest and most profitable banking group of the country came to RM34.68mil. Apart from his hefty bonus, this sum included his basic salary of RM7.2mil and other emoluments of RM6.19mil.

The basic salaries of Farid was RM2.64mil, Zafrul at RM3.1mil and Khairussaleh received RM2.72mil.

Although Farid’s basic salary was the lowest among the three, his total remuneration package for 2018 was RM9.6mil and the highest among GLC-backed banks. Zafrul’s total remuneration package was lower at RM8.69m while Khairussaleh received RM4.51mil.

Interestingly the CEO of Hong Leong Bank, Domenic Fuda, received more than Farid, Zafrul and Khairussaleh.

Fuda, who heads the fifth largest bank by asset size and owned by low-profile tycoon Tan Sri Quek Leng Chan, received a total package of RM12.02mil in 2018, a significant jump from the total remuneration package of RM8.12mil in 2017.

In contrast, the total amount received by the top three GLC bank CEOs – Farid, Zafrul and Khairussaleh – was lower than the package they got in 2017.

Last year was a tough one and most companies recorded lower earnings growth. But the GLC-backed banks did reasonably well.

The return on equity (ROE) of Maybank, CIMB Group and RHB Bank grew in 2018 compared to 2017. In comparison, Public Bank’s ROE was lower in 2018 compared to 2017, based on data by Bloomberg.

A point to note is that although Public Bank’s ROE was lower in 2018, it is much higher in absolute amount, compared to Maybank, CIMB, RHB and Hong Leong Bank. In 2018, Public Bank’s ROE, which is an indicator of profitability, was 14.27%, a decline compared to 15.28% in 2017.

Based on Bloomberg data, Maybank’s ROE for 2018 was 9.91%, CIMB at 11.21% and RHB recorded 9.91%. Hong Leong Bank showed a ROE of 11.33%.

When the new government took power in Putrajaya in May 2018, one of the issues that came to the fore with regard to the GLCs were the remuneration packages of the top executives. In particular, the pay packages of those employed in Khazanah Nasional Bhd had come under scrutiny.

A talking point then, and now, is the debate on GLCs needing to pay salaries that are commensurable to the private sector if they are to attract and retain the right talent. The other side of the argument is that the success of GLCs is largely attributed to the government being their owner and hence the CEOs do not deserve to be paid private-sector kind of salaries.

There is some logic on both sides of the argument. However, the gap between what a person earns at a GLC compared to a completely private outfit cannot be too wide. At some point, the person working on the GLC will leave and bring along his or her wealth of experience to the private sector.

This tends to happen, especially in companies that operate in a highly-regulated environment and large organisations where CEOs with people skills are important to handle stake-holders as well as employees.

The banking sector falls under this category. It is large and operates in a highly-regulated environment.

Even board members have to pass the “fit-and-proper” test of Bank Negara. That is why board positions in banks are special. The board members are expected to stand their ground and not be influenced by the major shareholder.

Also, Bank Negara is the over-riding guardian, looking at the books of the banks and making sure that there is no unscrupulous lending to the extent that it would cause a danger to the banking system.

It is for reasons such as these that investors are fairly comforted. Although there are no clear successors in banks such as Public Bank, the machinery is well-oiled to ensure the financial institution operates without hiccups.

The founder of Public Bank, Teh has taken a back seat for a few years now but it has not affected operations. It’s the same situation in Ambank Group and Hong Leong Bank where Tan Sri Azman Hashim and Quek do not play a big role in operations.

When owners take a back seat, retaining talent to run operations in a highly competitive industry such as banking is important because it involves money. A few bad judgement calls can be costly for banks.

Most people join GLCs well aware that they will not earn as much as what the private sector pays. However, a gap in remuneration that is too wide and obvious would drive talent out of GLC-backed banks sooner than envisaged.

There is a view that the CEOs of GLCs are having it good and they will not leave. However, if they do leave for whatever reason, finding a replacement at a lower cost and acceptable to all stakeholders will not be easy.

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