Remuneration based on performance

OVER the last few weeks, the spotlight has been turned on government-linked companies (GLCs), and how much their key executives and directors ought to be remunerated.

Salaries and the remuneration packages of the GLCs’ key executives were revealed, and not surprisingly, many of the key heads are receiving very high salaries despite the GLCs performing inefficiently.

Moving forward, Prime Minister Tun Dr Mahathir Mohamad has said that the GLC heads will no longer receive big salaries, but be rewarded with “big bonuses” if they perform.

Now, apart from benchmarking the remuneration of the GLC heads to key performance indicators, perhaps the GLCs also need to relook their efficiency indicators.

The top-30 companies by market capitalisation on Bursa Malaysia are predominantly GLCs.

However, are they really big because they are real market leaders with exciting growth potential, or more so because of their incumbent status – hence they have size, market access and government support?

Most would say it is because of the latter. In Malaysia, GLCs are the incumbent winners or beneficiaries of large projects or big concessions, not because of their competitiveness, but more so because of their privileges. By continuing to allow the GLCs these entitlements, are we in fact crowding out the smaller but perhaps more competitive companies?

Without exposing our smaller companies to new opportunities, they will never have the chance to scale up, increase their offerings or move up the value chain.

Perhaps, some balance ought to be achieved.

As we all know, greater competition leads to greater innovation. And it is innovation that increases our standard of living and ultimately reduces cost.

Prices will never drop as long as it is dominated by large state-owned sectors or inefficient firms insulated by various types of barriers.

While competition should not be left unsupervised, a little bit more focus on efficiency wouldn’t hurt. An approach to efficiency in general leads to higher levels of competitiveness, and helps deal with the unexpected and provides resiliency.