How low should GLC executives be paid?

Nobody really has an answer to the appropriate remuneration package that those heading GLCs should get

A YEAR ago, a chief executive of a government-linked investment company (GLIC) was supposed to be replaced by a senior executive from Khazanah Nasional Bhd.

However, the move did not happen because of a huge gap in the salary structure between the two organisations. The senior executive from Khazanah was earning more than the CEO of the GLIC.

A sticky point in the changes that are taking place among government-linked companies (GLCs) and GLICs now is the compensation package of the top executives.

For those serving in listed companies, the compensation packages are disclosed in the annual reports. However, the annual remuneration of those serving in unlisted GLCs and in GLICs is not known.

The compensation package of those in unlisted GLCs and in GLICs has been a taboo subject. It is hardly spoken about, although it is common knowledge among industry peers that the remuneration package system in Khazanah serves as a benchmark.

Many serving in GLCs and GLICs would like to compare their compensation packages with the remuneration package of Khazanah.

However, under the present government, the executives can only dream of getting a compensation package drawn up along the lines of the Khazanah structure.

The view held is that the success or failure of GLCs is largely tied to the government. The government also wants GLCs to focus on domestic industries and not crowd out the private sector.

On such grounds, the view held is that compensation packages of executives cannot be compared to their counterparts in other sovereign wealth funds (SWFs) or GLCs.

The flip side to the argument is that executives managing funds in government institutions such as the Employees Provident Fund (EPF) or those serving SWFs such as Khazanah should get paid well if they are to deliver on their mandate.

For a short period, anybody would undertake a task given to them even though they know that their compensation package is inferior to that of their peers. However, in the longer term, a good remuneration package is an important source of motivation.

This is human nature. After all, at the end of the day, everybody works for themselves. The pride and joy of sacrificing for the nation or even the company they work for will wear off over time.

The new appointees who have been appointed to top positions in GLCs and GLICs are all taking up their positions with no big change in their remuneration packages, which begs the question: will they be motivated to give their best in the new job for the longer term?

They probably would put their best foot forward for the first year or two. However, it would not be long before they seek greener pastures elsewhere.

This is the reason why Khazanah came up with a comprehensive compensation package for its executives.

As part of the GLC Transformation Initiative, the government supported the idea of having more professional managers run companies where it had interests in. To motivate the professional managers and to ensure that they did not cut side deals for themselves, Khazanah came up with a comprehensive salary package.

It was prepared by a consultant and had three elements to it. The three were a basic salary, a bonus of up to 12 months and stock options. Only the basic salary is firmed up while the other two components vary based on the performance of the company.

The variable components are based on the performance of the portfolio of companies that they manage. There is a system that calculates all three components and the board assesses the package.

In a good year, executives can take home a good package if all three components come together. Even in a moderate year, the package is fairly attractive.

However, despite the good package, Khazanah has lost some people to competitors. This merely adds credence to the fact that good people will also be sought-after. A low compensation package merely adds on to the reasons for them to leave.

The argument that the Khazanah-type of compensation package is too high also has its valid points.

Firstly, not all deserve to be well-compensated. There are bright sparks in the market who are prepared to take on the job at lower salaries and are capable of delivering.

Secondly, since the policy of the government is that it should be less involved in business, it does not need to pay top money for those running the companies.

While the debate rages on as to how much executives in GLCs should be paid, it is clear that too low a compensation package is not going to attract the best of talents. Even if it does, they would be hard to retain.

So, how much should executives at GLCs and GLICs be paid?

Nobody really has an answer to this question, but a solution has to be found – and that too quickly. This is because there are likely to be many positions in GLCs and GLICs that need to be filled by talented people.