By ALIFAH ZAINUDDIN / Graphic By TMR
The Employees Provident Fund (EPF) could lead institutional investors to force government-linked companies (GLCs) to justify their pay structure and even force for a trim for excessive remuneration.
The country’s largest pension fund, which manages RM814.4 billion of assets including about 42% in equities, has substantial stakes in the country’s key listed companies, especially GLCs.
The government had voiced its unhappiness over the skyrocketing salaries at these GLCs, warning that the days of excessive remuneration are over and financial rewards will be based on performance.
According to a source, the Council of Emminent Persons (CEP) had also enquired about the remuneration at GLCs and government-linked investment companies (GLICs), and the basis of their high pay structure.
The Malaysian Reserve (TMR) had recently listed the salaries at GLICs with many CEOs hitting over RM3.5 million. But the Petroliam Nasional Bhd-linked listed firms are the most shrewd with total remuneration of below RM1 million.
Inter-Pacific Research Sdn Bhd head of research Pong Teng Siew said the EPF and other institutional investors can band together to pressure GLCs to reconsider their approach, despite recommendation from the remuneration committee of the respective GLCs.
“The remuneration committee of the respective companies seem to have the last say on pay. If they okayed it, then it goes right through. But institutional investors can get together with some of the other shareholders to force the issue.
“In the process of raising the issue and making shareholders more aware of it, I think they could at least bring it to the attention of the management that there are objections, rather than have everything just rubber-stamped,” Pong told TMR.
The EPF is one of seven GLICs who hold substantial stakes in various key economic sectors in the country such as banking, utilities, plantation, property development, and oil and gas.
GLCs are owned by these state-owned investment entities via different direct and indirect channels.
Many of the country’s state-owned enterprises have come under fire over the lucrative pay given to their top brass, with some banking in as high as RM30 million per annum.
Last week, the attention was on Sapura Energy Bhd president and group CEO Tan Sri Shahril Shamsuddin, who was paid RM71.92 million in remuneration, including RM55 million in bonuses for the financial year 2018.
It was reported that the EPF had tried to vote against a resolution for Shahril’s re-election as the director of the company during Sapura Energy’s AGM on July 18. However, the move was unsuccessful as Shahril received 82% of the overall vote to keep his job.
Shahril, who owns a 15.9% interest in Sapura Energy, defended his remuneration, saying that the high salary was due to a share covenant he had with financial institutions and was decided by the company’s remuneration committee.
Meanwhile, Pong said it is too early to see if the EPF will take a more critical approach at company AGMs. But if they do take the lead, he said it will certainly pave the way for more activist shareholders.
UOB Asset Management (M) Bhd CIO Francis Eng Tuck Meng said institutional investors can engage GLCs’ management on executive compensation besides the voting route.
Eng said GLCs compensation would need to be marked against the private sector in order to be competitive, to attract and retain talent.
He said efforts to align executive compensation to company performance would be well received by investors, he said in an email reply.
GLCs account for more than half of the benchmark FTSE Bursa Malaysia KLCI and 36% of market capitalisation of Bursa Malaysia. Seven out of the top 10 listed firms in 2018 are GLCs.