Setting the right levels of pay


  • Letters
  • Monday, 13 May 2019

WHERE corporate social responsibility is concerned, two clear developments in corporate governance are laudable. The first is the introduction of the corporate liability provision in the Malaysian Anti-Corruption Act, which makes a commercial organisation and its directors liable for acts of corruption committed by any persons associated with it, including its employees.

The second is the introduction of the Securities Commission’s Corporate Governance (CG) Moni­tor, launched on May 6. If this had been launched sooner, perhaps the 1MDB scandal could have been prevented! Both provisions highlighted the need for long-serving independent directors and gender diversity in the boardroom.

Why is this important? First, we need to understand that corporate governance is based on how companies are controlled and directed through a relationship between its senior management, board, shareholders and other stakeholders. In essence, the board of directors acts as the “guardians of assets”, providing proper stewardship for the company.

Their expertise and length of stay as directors are crucial to creating long-term value for a company. There is a corporate duty on senior management to exercise due diligence, especially in terms of care, rigour and attention in acquisition and disposal of assets.

To put things into perspective, debate has always been between Wall Street and Main Street, between the C-suites and ordinary employee. Which is why, apart from reviewing the salaries of senior management, the board of directors’ responsibilities should also include looking at the ordinary wage earners – its internal stakeholders. By the way, the minimum wage of RM1,100 in Malaysia is far from the desired level. After all, what can this amount buy you these days? Minimum wages should be linked to the cost-of-living index, and should be reviewed on a continuous basis.

At times, the amount of remuneration CEOs receive, especially when the company is not exactly performing well financially, or sells products that are less than desirable, is questionable. The CG Monitor 2019 shows that the highest CEO remuneration is RM168mil, while the highest CEO remuneration among government-linked companies is RM33.9mil. Could these monies have been put to better use in rewarding the ordinary employees? In doing so, the CEOs would be enlightened leaders who have shown the way forward in corporate social responsibility.

The ongoing debate on compensation is driven by several forces, namely the apparent injustices in determining the levels of pay, latitude in allowing directors and corporate leaders to decide on pay, lack of clear relationship between organisational performance and pay, proliferation of hidden packages or supplements, and weakness in supervision. This is what the 2020 CG Monitor should look into.

To set the right remuneration, there should be a mechanism and database for simple comparison, job analysis, and a system to administer. To achieve this, the Securities Commission needs the extensive and continuous help of the Malaysian Institute of Corporate Governance, and the Institute of Corporate Directors Malaysia.

At the end of the day, the objective of remuneration must look into three important things: profits (economic gain), people (community and humanity welfare) and the planet (sustainable development).

DR THANASEELEN RAJASAKRAN

Faculty of Creative Industries

Universiti Tunku Abdul Rahman


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