Board Remuneration Policy

Board Remuneration Policy | Bestar

Board Remuneration Policy Malaysia

In Malaysia, board remuneration policy is a crucial aspect of good corporate governance, guided primarily by the Malaysian Code on Corporate Governance (MCCG), issued by the Securities Commission Malaysia, and the Bursa Malaysia Listing Requirements.

Here's a breakdown of the key principles and practices:

1. Objectives of Board Remuneration Policy:

• Attract and Retain Talent: Remuneration should be competitive enough to attract and retain qualified and experienced directors, both executive and non-executive.

• Motivate Performance: The policy should incentivize directors to achieve the company's business objectives and contribute to its long-term success and sustainability.

• Align Interests: Remuneration should align the interests of directors with those of the company and its shareholders, promoting long-term value creation.

• Fairness and Transparency: The process for determining remuneration should be formal, transparent, and fair.

2. Key Principles and Best Practices (MCCG 2021 highlights):

• Formal and Transparent Process: Companies are expected to have a formal and transparent process for determining the remuneration of directors and senior management. This policy should be periodically reviewed and made available on the company's website.

• Remuneration Committee (RC):

  • The board should establish a Remuneration Committee, typically comprising exclusively or a majority of non-executive directors (preferably independent directors).

  • The RC is responsible for recommending the remuneration framework for executive directors and senior management to the board.

  • Executive directors do not participate in discussions or decisions regarding their own remuneration.

• Differentiation of Roles: Remuneration policies and practices should appropriately reflect the different roles and responsibilities of:

  • Non-Executive Directors (NEDs): Their remuneration typically consists of fixed annual fees, meeting allowances, and potentially other benefits-in-kind. It should reflect their experience, expertise, time commitment, and responsibilities, but generally not be linked to short-term company performance (e.g., commissions or percentage of profits/turnover). Shareholder approval at the Annual General Meeting (AGM) is usually required for directors' fees for NEDs.

  • Executive Directors (EDs) and Senior Management: Their remuneration packages usually include both fixed (salary, benefits) and variable (bonuses, incentives) components. The variable portion should be linked to the company's and individual's performance, aligning with short-term and long-term performance objectives.

• Disclosure:

  • The MCCG encourages companies to fully disclose the detailed remuneration of individual directors and the top five senior management on a named basis. This allows shareholders to make informed decisions and understand the link between remuneration and company performance.

  • However, actual disclosure levels for senior management remuneration have been historically low in Malaysia.

• Considerations in Determining Remuneration:

  • Company's business outlook, financial position, growth, and trends.

  • Prevailing market practices and competitive compensation.

  • Demands, complexities, and performance of the company.

  • Skills, experience, time, commitment, and responsibilities of individual directors.

  • Fiduciary duties and duty of care.

  • Nature of the industry (e.g., regulated industries may have greater demands).

  • Size of the company (in terms of revenue, market capitalization, etc.).

  • Profitability.

• Review and Benchmarking:

  • Remuneration policies and levels should be reviewed periodically (e.g., at least once every three years for NEDs).

  • The RC may engage independent professional advice to benchmark remuneration against comparable companies and industry practices.

• Shareholder Approval: Directors' fees and benefits payable to Non-Executive Directors are typically subject to annual shareholder approval at the AGM.

3. Regulatory Framework:

• Malaysian Code on Corporate Governance (MCCG): Provides principles and best practices. While not legally binding, listed companies are required by Bursa Malaysia Listing Requirements to explain their adoption or departure from these practices in their annual reports.

• Bursa Malaysia Listing Requirements: Mandates certain corporate governance practices, including aspects of board composition and remuneration disclosure.

• Companies Act 2016: Contains provisions related to directors' duties and powers, indirectly influencing remuneration practices.

In essence, Malaysian board remuneration policies emphasize a structured, transparent, and performance-linked approach, with a strong focus on aligning the interests of the board with the long-term sustainability and value creation for shareholders.

How Bestar can Help

Bestar, in the context of board remuneration policy in Malaysia, can provide invaluable assistance to companies in several key areas. Our expertise helps ensure that policies are compliant, competitive, fair, and aligned with good governance principles.

Here's how Bestar can help:

• Market Benchmarking: We possess extensive data on compensation practices across various industries and company sizes in Malaysia and the region. We can benchmark the company's existing remuneration against market standards to ensure competitiveness.

• Policy Design and Review: We help design comprehensive remuneration policies for executive directors, non-executive directors, and senior management, ensuring they are aligned with the company's strategy, risk appetite, and the MCCG. We can also review existing policies for effectiveness and compliance.

• Performance Measurement Linkage: We assist in developing robust performance metrics (financial and non-financial) that are directly linked to variable remuneration components, ensuring pay-for-performance.

• Incentive Scheme Design: We design short-term (e.g., annual bonuses) and long-term incentive plans (e.g., share options, performance shares) that align with shareholder interests and drive sustainable growth.

• Governance and Compliance: We advise on adherence to the MCCG, Bursa Malaysia Listing Requirements, and other relevant regulations, helping companies navigate disclosure requirements and best practices.

• Committee Support: We can provide independent advice and support to the Remuneration Committee, helping them make informed decisions.

• Stakeholder Communication: We can help draft clear and comprehensive remuneration reports for shareholders and other stakeholders.

• Regulatory Compliance: We ensure that the remuneration policy and its implementation comply with the Companies Act 2016, Bursa Malaysia Listing Requirements, and other relevant laws and regulations.

• Contractual Agreements: We draft and review employment contracts and service agreements for executive directors and senior management, ensuring that remuneration terms are legally sound and enforceable.

• Share Scheme Documentation: If share-based incentive schemes are used, we draft and review the scheme rules and related documentation to ensure compliance with securities laws and corporate governance best practices.

• Disclosure Requirements: We advise on the specific legal requirements for disclosing directors' remuneration in annual reports and other public filings.

• Procedural Compliance: We ensure that the formal process for approving remuneration (e.g., board meetings, committee meetings, shareholder approvals at the AGM) is followed correctly and documented properly.

• Governance Advisory: We advise the Board and the Remuneration Committee on corporate governance best practices related to remuneration, drawing from the MCCG.

• Record Keeping: We maintain accurate records of all remuneration-related decisions and approvals.

• Disclosure Assistance: We assist in preparing the relevant sections of the annual report concerning directors' remuneration and other governance disclosures.

• Communication with Shareholders: We facilitate communication with shareholders regarding remuneration matters, especially concerning resolutions for directors' fees.

• Financial Reporting Compliance: Bestar plays a crucial role in verifying the accurate financial reporting of remuneration expenses in the company's financial statements.

• Internal Controls: We may review the internal controls related to remuneration processing and payments to ensure accuracy and prevent fraud.

• Talent Management Integration: We ensure that the remuneration policy is integrated with the broader talent management strategy, helping to attract, retain, and motivate key personnel.

• Performance Management Systems: We contribute to developing and implementing robust performance management systems that underpin performance-linked remuneration.

• Employee Communication: We can help communicate the remuneration policy effectively to employees, fostering understanding and engagement.

By engaging Bestar, companies can develop and maintain a robust, compliant, and effective board remuneration policy that supports their strategic objectives and enhances corporate governance.

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