Transparency in remuneration

THERE are a couple of things that we can take away from the debate arising from Sapura Energy Bhd’s remuneration paid to its top executive Tan Sri Shahril Shamsuddin.

One is not to take investors/shareholders for granted, and secondly, the importance of communication.

Remuneration paid to directors is deliberated by a Remuneration Committee which makes a recommendation to the board, which then is eventually approved at the company’s AGM.

So, if a top executive is paid a hefty remuneration that seems “out of the ordinary”, it should be explained in the annual report, which is an important element in the genre of public discourse.

In Sapura Energy’s case, the Minority Shareholder Watch Group voiced their unhappiness over Shahril’s total pay package of RM71.92mil for the financial year 2018 (FY18) at the company’s AGM earlier this week.

A representative of MSWG said after the AGM that the issue of Shahril’s remuneration was brought up many times in previous AGMs, but the company only “noted the matter” without taking any action.

According to the company’s 2018 annual report, Shahril was paid a salary and related emoluments of RM7.24mil. He was also awarded with a RM55mil bonus, which was based on the prior year’s group performance and achievements, along with RM9.34mil in defined contribution plan and RM348,000 in various benefits-in-kind.

Past annual reports showed that Shahril’s total remuneration between FY14 and FY17 was above the RM80mil band, with the bulk of it comprising huge bonus payments. Shahril is Sapura Energy’s single largest shareholder with a 15.9% stake.

A day after the shareholders meeting, it came to light that Shahril’s remuneration was tied to a share covenant that he has with financial institutions when the company refinanced its huge RM14bil borrowings.

Shahril told a local financial daily that if he were to sell his shares to below 10%, the loan would default, and if he were to step down from being the CEO, the loan would also be in default.

However, the share covenant issue was not stated in the annual reports.

Why was it left out?

With growing shareholder activism, listed companies need to have sound shareholder communication.

This is especially the case when it involves directors’ remuneration.

Sapura Energy counts funds like the Employees Provident Fund (EPF), The Retirement Fund Inc, Amanah Saham Bumiputera and Lembaga Tabung Haji as shareholders.

These institutions manage money from the members of the public and are compelled to play a “watchdog role”.

The market often perceives these funds as not being robust enough in promoting good corporate governance and corporate accountability. The case of Sapura Energy dispels this.