GEORGE TOWN: The Consumers Association of Penang (CAP) is calling for greater transparency in the disclosure of pay levels and practices for the directors of government-linked entities (GLEs).
CAP president Mohideen Abdul Kader said CAP’s new book, titled “How Much Is Hidden?: Pay for Elites in Government-Linked Entities”, issued this call amid public concern over the substandard performance of some GLEs and recognition of the need for proper use of government resources in the current challenging economic environment.
He said GLEs included government-linked investment companies (GLICs) and government-linked companies (GLCs) as well as statutory bodies, foundations, special purpose vehicles, development financial institutions and various state-level agencies.
“Well-documented cases of underperformance in some prominent GLEs have raised questions on the competency of their boards of directors and the appropriateness of their remuneration practices.
“There is thus a need to ensure that the performance of GLE directors in governing and managing these entities is commensurate with their pay levels.
“Towards this end, there should be clarity not only on how performance is measured, but also on the board pay amounts awarded,” he told a press conference here today.
Mohideen said the book found that in 2017, each GLE executive director (including the CEOs) earned on average as much as the total minimum wages of 308 employees.
“Further, the median of GLE non-executive directors’ pay grew by 19.9 per cent from 2016 to 2017, while the growth rate of median salaries and wages of employees was only 7.7 per cent.
“These figures give rise, among others, to questions about pay disparity.
“For example, does a GLE executive director work 308 times harder than the lowest-paid employee?
“Is this wide top-bottom pay gap justifiable from the standpoints of equity and efficiency?
“And, how does this square with the recently unveiled Shared Prosperity Vision that calls for fairer distribution of resources?,” he asked.
According to the book, Mohideen said, the payment of bonuses, which unlike salaries, were not fixed in amount and could be subject to abuse.
“Therefore, huge bonus sums may also need to come under scrutiny.
“The highest estimated bonus-to-salary ratio uncovered in the book are: 618 per cent (in financial year 2015) for the acting president and CEO of SP Setia Bhd; 600 per cent (FY 2017) for the managing director and CEO of IHH Healthcare Bhd; and 433 per cent (FY 2017) for the CEO of Telekom Malaysia Bhd,” he said.
Mohideen said the authors of the book, UK-based accounting and finance academics Marizah Minhat and Nazam Dzolkarnaini, cautioned however, that the book’s findings, which cover the 2013-2017 financial period, were based on a limited amount of information and exercise of judgment by the data collector.
“This is precisely due to inadequate and inconsistent reporting of GLE directors’ pay, which only underlined the need for more transparency in this area.
“For instance, as the book notes, leading GLEs like Khazanah Nasional Bhd, Permodalan Nasional Bhd (PNB) and Malaysia Airlines Bhd do not publicly report their directors’ remuneration.
“For some GLEs such as Petronas and the Employees Provident Fund (EPF) which do report this, the disclosure falls short of adequate detail.
“Disclosure practices are also inconsistent among different GLEs; for example, some GLEs lump together several pay components in a single figure.
“On top of this, complex pay components like share options awarded to directors are often insufficiently disclosed and their fair value hidden or omitted,” he said.
Mohideen said in light of its findings, the book flags a number of key concerns with the first being that unlisted GLEs were not subject to disclosure requirements despite the fact they had benefited from and were entrusted to manage public resources.
He said, secondly, for many listed GLEs, more reliable estimates of each board pay component (salaries, fees, allowances, bonuses, share options/ grants, post-retirement pay, benefits-in-kind) and of variable-to-fixed pay ratios were not available due to pay disclosures being made on an aggregated basis across several components.
“In addition, the book also reveals some instances of seemingly extravagant perks and benefits granted to GLE directors, questioning whether such awards are justified from an economic perspective,” he added.
He said to remove the opacity surrounding GLE directors’ remuneration, Marizah and Nazam propose a standardised pay disclosure format for all GLEs, which could be modeled along the lines of the UK’s Directors’ Remuneration Report Regulations.
“Greater transparency will allow for more informed and effective scrutiny by the public, who are the ultimate stakeholders of GLEs.
“This would be in line with the public’s interest in improving GLE governance and ensuring resources are managed efficiently on their behalf,” he said.