Focus on directors’ fees

  • Business Premium
  • Saturday, 29 Jun 2019

Chairman FGV, Datuk Wira Azhar Abdul Hamid ( centre ) during the FGV Holdings Berhad 11th Annual Genaral Meeting (AGM) at TM Convention Centre. NORAFIFI EHSAN / The Star

Corporates on Bursa Malaysia have seen a cut in director’s remuneration but the decision by shareholders of FGV Holdings Bhd to reject resolutions approving the payment of fees to the company’s directors is seen as unprecedented.

Felda, the Armed Forces Board (LTAT) and Koperasi Permodalan Felda Malaysia Bhd (KPF), which are the major shareholders of FGV, threw uncertainty in the air and the ongoing turnaround plan for the ailing diversified plantation group.

At FGV’s AGM on Tuesday, Felda, LTAT and KPF rejected the three resolutions pertaining to the FGV directors’ remuneration fees, but, at the same time approved the re-election of the same FGV board members.

In 2018, the directors of FGV were to be paid a total sum of about RM5.7mil with its non-executive chairman Datuk Wira Azhar Abdul Hamid taking nearly RM2mil of the sum.The fee payable to Azhar is about RM1.95mil. His remuneration package includes salary of RM415,483.90, chairman fee of RM600,000, annual fee from subsidiaries totaling RM315,000 and benefits in kind amounting to RM313,244.35.

So far, only one major shareholder, LTAT, has come up with an official statement that it is of the view FGV’s director’s remuneration should commensurate with the current state of affairs and its prospects ahead, given the prevailing economic conditions and FGV’s current financial standing.

The decision was premised on the fact that LTAT strongly believes in shareholder activism, particularly to protect the interests of its contributors - the members of the armed forces.

Hence, LTAT, which has a 1.25% stake in FGV, says the decision is not taken lightly following considerable discussion and deliberatio.Since its listing debut in mid-2012, efforts to transform FGV into a financially-viable and successful outfit has hit speed bumps.

The planter has also been badly criticised for its massive acquisition spree in over-priced and non-value-accretive investments by its previous management, after gaining RM4bil in proceeds from its initial public offering exercise.

FGV reported a net loss of RM3.37mil in the first quarter ended March 31, compared with a net profit of RM1.12mil a year ago, largely due to a sharp decline in CPO prices and lower average selling prices in the sugar sector.

Meanwhile, Employees Provident Fund (EPF) which has a 1.85% stake in FGV, also raised its concerns about the high remuneration of the directors especially on the high payment to the chairman via a letter to FGV, but the fund opted to approve all the resolutions at the recent AGM.

When asked by a local financial daily recently on the FGV directors’ remuneration package issue, EPF CEO Tunku Alizakri Alias says EPF has always closely scrutinised the performance of its investee companies, which include the board and management.

“Where the company’s performance merits it, the CEO will be recognised accordingly,” he adds.

As at press time, Felda and KPF, which own 33.6% and 5% stake in FGV respectively, have yet to come up with their official statements for rejecting the resolutions on FGV’s directors fee.

When contacted, Azhar tells StarBizWeek that “the ball is no longer in my court and it will up to our major shareholders to decide.

“For myself and my board members, it will be business as usual and we will continue to play our role.”

He also points out that the FGV board represents responsible professionals who have dedicated sheer hard work over the past one and a half years to restructure FGV to be on a turnaround path, which is currently progressing well.

Azhar believes that the FGV board should not be penalised for their hard work and “if the real issue is on the high remuneration package then the FGV board is open and most willing to have further discussions with our major shareholders.”

“What concerns us most is the interests of the company, so we want to make sure whatever decision that we make does not only represent one shareholder’s interests but we have the interests of all shareholders and the corporation in mind” explains Azhar.

It is worth to note that Azhar had volunteered to waive his fees (during the AGM) to enable all the other directors to be paid as normal, but this move did not create any change in the decision among the major shareholders at the AGM.

When asked on Tan Sri Mohd Bakke Salleh who will step in as the new Felda chairman on Monday, Azhar notes that “I find this comforting as Bakke is a highly experienced and well respected corporate figure.”

A number of corporations too have seen payments to directors being cut last year with Genting Malaysia Bhd hogging the limelight when its chairman and chief executive Tan Sri Lim Kok Thay has taken a 20% voluntary pay cut.

That was in relation to the increase in the gaming tax and the impact on the firm’s profitability. According to Genting Malaysia’s 2018 Corporate Governance Report, Lim’s salaries and bonuses amounted to RM50.18mil.

A 20% pay cut from this would amount to about RM10mil.

Meanwhile, CGSCIMB in its latest report paints two possible scenarios post-historic FGV’s AGM vote.

CIMB Investment Bank regional head of plantation research, Ivy Ng says in the latest report that “we are of the view that FGV could potentially resolve this issue by engaging with major shareholders to understand their concerns.

“If both parties are able to come to a resolution, FGV could call for an EGM to seek shareholders’ approvals on the revised terms for resolution one, two and three.”

> Resolution one – sought the approval of FGV’s shareholders for the payment of RM2.55mil in directors’ fees for FY2018;

> Resolution two – sought the approval for the payment of a portion of directors’ fees to non-executive directors up to an amount of RM1.18mil from June 26 until the next AGM in 2020 and

> Resolution three – sought the approval for payment of benefits to non-executive directors.

According to Ng, a possible second scenario is that FGV and its major shareholders are not able to resolve their differences.

“This could potentially lead to the resignation of board members and short-term uncertainties as the new board may have different long-term plans for FGV. “

CGSCIMB will continue to maintain a “hold” call on FGV with a SOP-based target price of RM1.18 while keeping a close eye on the outcome of the development.

FGV share price on Bursa Malaysia closed unchanged at RM1.12 yesterday.

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