Director pay and remuneration policy have become contentious issues of late. In Malaysia, Sapura Energy and FGV are two recent cases of inexplicably large top management pay not commensurate with firm performances, which attracted the attention of investors, regulators, minority shareholders watch group, and academicians. This misalignment of the directors’ excessive remuneration to the weak performance has prompted institutional investors such as EPF to include the following in EPF voting policy at AGM:

“In the event that EPF views the remuneration to be excessive, EPF proxies will raise this issue at shareholder meetings or will vote against the appointment of the affected director(s), as well as the Chairman of the Board, or the Chairman of Remuneration Committee (or its equivalent), or any independent directors.”

In addition, the huge pay disparity between top management and employees is also in the spotlight since this pay practice is at odds with the UN’s Sustainable Development Goals on reducing inequalities. Acknowledging this concern, the Malaysian Budget 2019 stipulates that listed firms must disclose key pay metrics in their annual reports. In addition, EPF requires its investee companies to disclose in the annual reports pay information such as the “highest-to-median employee wage” and highest-to-lowest employee wage” ratios and a declaration of the initiatives to improve employees’ average pay. Moreover, the latest Corporate Governance Monitor 2020 issued by the Securities Commission continues to highlight the lack of detailed disclosures on top management pay.

The above remuneration irresponsibility triggers corporate governance researchers to understand better the director pay and remuneration policy, including the factors that explain the cross-sectional variations in pay practices among Malaysian listed firms. Rima Melini, a DBA candidate at the Othman Yeop Abdullah Graduate School of Business, UUM, is currently writing a doctoral thesis under the supervision of Professor Wan Nordin Wan-Hussin, on this important research topic. u