SINGAPORE (June 17): CEO compensation is always a hot issue. What is the right and fair compensation companies should pay their CEOs? Obviously, performance is a criteria but what is performance? Suffice to say there is more than one measure of performance.
Working with AbsolutelyStocks.com, we have compiled data on the Top 40 highest-paid CEOs of Bursa-listed companies based on FY2018 compensation (Table 1) and ranked them via different measurements: compensation as a percentage of net profit (Table 2), compensation as a measure of market capitalisation (Table 3) and compensation versus returns to shareholders (Table 4). Table 5 looks at CEO compensation versus staff compensation.
Table 1 shows that the big boss of Genting, Tan Sri Lim Kok Thay, was the best-paid CEO in 2018. He took home RM183 million, up from RM168 million in FY2017. It is interesting to note that while his compensation increased 9.0%, Genting’s net profit fell 5.5% from FY2017. Table 4 shows that while Lim’s compensation rose, total returns to Genting shareholders fell 32% in 2018 from a year ago. So why was Lim paid more than the year before?
On the other hand, while IOI Corp executive chairman Tan Sri Lee Shin Cheng (who passed away recently) received a whopping 196% rise in compensation to RM68.7 million, the company’s net profit shot up by 311.8% (Table 1). Furthermore, he also delivered total returns of 6.7% (share price and dividends) to shareholders (Table 4).
One really puzzling compensation package was what Bumi Armada paid its CEO Leon Andre Harland. His take-home pay rose 37%, from RM7.28 million to RM10 million in FY2018 (Table 1), although the company suffered losses while total returns to shareholders plunged 79% (Table 4).
A CEO who may feel aggrieved could be Dialog executive chairman Tan Sri Ngau Boon Keat. His compensation in FY2018 fell 8.1% to RM6.57 million from RM7.15 million in FY2017 (Table 1). Over the same period, Dialog’s net profit surged 37.7% while its shareholders, including Ngau himself, enjoyed hefty returns of 62.6% (Table 4).
One could argue that CEO compensation as a percentage of shareholders’ returns is the fairest measure as it shows the relationship between what a CEO and his shareholders get. In other words, it shows whether the interests of the CEO and shareholders are aligned.
If shareholders are getting good returns, they should not begrudge what the CEO gets. On the other hand, if shareholders get no, or negative, returns, they are entitled to be upset if the CEO is handsomely paid.
Table 2 ranks CEO compensation as a percentage of net profit.
The top four companies — Sapura Energy, Axiata Group, Berjaya Corp and Bumi Armada — do not have a figure (NA, or not applicable) because their companies suffered losses. Of course, CEOs still need to be paid even if their companies lose money. They can’t be paid nothing. The question again is, how much?
It is interesting to note that the compensation paid as a percentage of net profit to the CEOs of the two biggest banks — Malayan Banking and CIMB Group — are the lowest among the Top 40 highest-paid CEOs.
Indeed, of the bottom six, five are banks, the others being Public Bank, Hong Leong Financial Group and Hong Leong Bank.
It should be noted that this measure of compensation as a percentage of net profit could be skewed by a one-off extraordinary item and probably be more accurate when tracked over a few years rather than over one year.
Table 3 is compensation as a percentage of market capitalisation and it is interesting that the bottom six (those whose pay is lowest as a percentage of the market capitalisation) looks similar to that of Table 3, with Maybank, CIMB and Hong Leong on the list. This is because these banks have large market capitalisations.
The ratio among the Top 40 highest paid CEOs as a percentage of market capitalisation ranged from 0.01% to 1.55%, with Tan Chong Motor’s executive chairman Datuk Tan Heng Chew topping the list.
As said at the start, CEO compensation will always be contentious. One size does not fit all as companies operate in different industries and face different situations. There are different ways of deciding what is the right and fair compensation.
What is best is for companies, through their board of directors, to articulate clearly their method of determining how they compensate their CEOs. This should be done by disclosing it in their annual reports for all shareholders, who have to vote on it, to know and understand. Merely stating the amount paid without explaining how it is derived is not enough.
