Aon plc, a leading global professional services firm, announced the findings from the 2024 Director’s Remuneration Report in collaboration with FIDE FORUM, a community of board leaders from the financial industry in Malaysia. The report explores the compensation practices of non-executive directors (NEDs) across financial institutions in Malaysia, delves into key elements such as board structure, composition, tenure and diversity, and analyses the compensation of NEDs and how it aligns with their roles and responsibilities.
The report revealed the total cost of governance – the amount of compensation made to all board members for financial institutions – varies widely. The cost of governance incurred by participants of the survey ranged from RM 500,000 to RM 3,500,000 and is influenced by factors such as institution type and asset size. Larger organisations, particularly those with assets exceeding RM 100 billion generally incur higher governance costs. On average, the total cost of governance by type of financial institution is:
- Corporate banks – RM 1.2M
- Insurance companies – RM 0.9M
- Investment banks – RM 1.7M
- Islamic banks – RM 1.3M
- Retail banks – RM 1.8M
- Takaful operators – RM 0.8M
The study also found that retainer fees for board chairs are typically 1.3 times to two times higher than those of board members while meeting allowances are consistent with no distinctions between board chairs and board members. Furthermore, 84% of participants do not provide compensation for information meetings, six per cent provide compensation for regulatory meetings and 11 % compensate NEDs for ad-hoc discussions.
In addition, 99% of the participants of the survey reported providing insurance to their directors, including directors & officers liability, group term life, group personal accident and travel insurance, while 56% provided medical benefits including inpatient, outpatient, dental, optical and wellbeing services. Apart from healthcare, 33% of participants reported providing learning and development opportunities that cover conferences and seminar fees, certifications, or online course subscriptions, over and above the training programmes facilitated by the institutions.
All participating institutions reported the existence of an audit committee and risk committee, as mandated by Bank Negara Malaysia (BNM), the central bank of Malaysia. However, only 92% of participants reported having a nomination committee and remuneration committee, often combined, despite these also being mandated by the BNM. The study found this is due to subsidiaries having these matters settled at a wider group level rather than at the individual institutional level.
Rahul Chawla, partner and head of Talent Solutions for Southeast Asia at Aon, “There is increasing demand for quality talent in businesses not only at executive levels, but also at the company board level. Companies need directors who are experts in their respective fields and who can significantly impact the company’s growth and overall corporate governance. However, directors often operate in a very complex environment which not only requires them to leverage diverse skills to provide stewardship but also be open to increasing shareholder and public scrutiny. By understanding these trends, organisations can better align their compensation practices to attract and retain the right directors while contributing to the overall growth and sustainability of their organisation.”
Data from the survey confirmed that boards have good diversity across tenure, gender and age. According to the survey, about 70% of institutions have their board chair represented on at least one board committee and 87% of boards have at least one woman as director, with 33% having three or more women directors on their boards. Additionally, 67% of directors are over 60 years old with 13% of directors being over 80 years of age. Regarding tenure, 59% of independent NEDs served the board for one to six years while 48% of non-independent NEDs have tenures ranging from one to nine years. This indicates there is a good mix of new and established directors on boards with new directors who may offer fresh perspectives while directors with longer tenures hold institutional knowledge.
Datuk Kamaruddin Taib, Chairman of FIDE FORUM said, “Across jurisdictions, remuneration policies are closely monitored alongside stringent corporate governance regulations. Directors should be compensated in a manner that preserves the effectiveness of board oversight functions. After all, the primary role of a director is to uphold good governance – not only to ensure institutional performance but [to protect] the interest of all stakeholders which is part of ensuring financial stability that [reinforces] confidence in financial institutions and markets.”
