Gap between salary and performance triggers concern

Competitive-based packages should be proposed where remuneration to executives is based on performance and measured against KPIs

By MARK RAO / Pic By ISMAIL CHE RUS

Investors’ opposition to listed firms’ resolutions sends a strong signal on the need for greater corporate governance and to solve the issue of disproportionate remuneration packages for companies’ executive, said a market analyst.

The analyst said stakeholders, especially institutional investors, were concerned how the remuneration will impact their returns on investments in these listed entities.

“Competitive-based packages should be proposed where remuneration to executives is based on performance and measured against set key performance indicators (KPIs).

“This ensures transparency and that a director’s remuneration package will not be disproportionately higher than the company’s earnings,” said the analyst who spoke under condition of anonymity to The Malaysian Reserve.

Remuneration of key executives continues to occupy headlines in corporate Malaysia especially since it was revealed that a majority of government-linked companies, (GLCs) CEOs were taking fat pay cheques.

Last week, attention was on Sapura Energy Bhd president and group CEO Tan Sri Shahril Shamsuddin (picture) who was paid RM71.92 million in remuneration, including RM55 million in bonuses for the 2018 financial year (FY18).

It was reported that the Employees Provident Fund (EPF) had tried to defeat a resolution during Sapura Energy’s AGM last week for Shahril’s re-election as the director of the company.

All six resolutions were passed including Shahril’s re-election as ED of the board, and non-EDs Mohamed Rashdi Mohamed Ghazalli and Datuk Muhamad Noor Hamid.

Shahril defended his remuneration, saying that the high salary was due to a share covenant that he has with financial institutions, he told The Edge Financial Daily.

He also said the salary was decided by the company’s remuneration committee.

“When someone offers me this, of course I will accept. I am just an officer of the company. And yet I am willing to do this. I could have sold my shares at RM4, but I didn’t; I didn’t even sell a single share…the opportunity cost is far more (than the compensation),” said Shahril, according to The Edge Financial Daily.

Shahril owns a 15.9% interest in the present company, which was a merger between SapuraCrest Petroleum Bhd and Kencana Petroleum Bhd in 2012.

The huge pay cheque for Shahril heightened after the company posted a net loss of RM2.5 billion in FY18 and recorded three straight quarters of losses to date.

The EPF had ceased to be become a substantial shareholder in Sapura Energy when it disposed of 10 million shares in the company on May 8 this year. Malaysia’s largest pension fund currently has a 4.84% interest in the company.

Sapura Energy share prices have been tumbling together with global oil prices since 2014, resulting in billions in its market capitalisation evaporating. Sapura Energy shares closed at 58.5 sen last Friday.

Remuneration of GLCs and government- owned entities have been the focal point as many question over the ballooned salaries and links to the previous government. Some of the GLC heads are raking in fat pay cheques, in some instances more than RM7 million in annual remuneration.

Interestingly, CEOs of Petroliam Nasional Bhd-linked listed companies were paid less than RM1 million annually despite their profits exceeding RM1 billion.

The government has said it would act and stop the excessive salary payments to GLCs and its related companies.