Aon plc, in partnership with FIDE FORUM, has released the “2024 Directors’ Remuneration Report,” shedding light on compensation practices for non-executive directors (NEDs) in Malaysia’s financial sector.
The report provides insights into board governance structures, diversity, tenure, and remuneration strategies across institutions of varying types and asset sizes.
The study highlighted that governance costs – the total compensation allocated to board members – vary significantly.
Surveyed institutions reported governance costs ranging between RM 500,000 and RM 3.5 million, with larger organisations, particularly those with assets exceeding RM 100 billion, incurring higher costs.
The average governance costs, segmented by institution type, are as follows:
Retainer fees for board chairs are typically 1.3 to two times higher than those for other directors. However, meeting allowances remain standard, with no distinction between roles.
The report also noted that 84% of financial institutions do not compensate for informational meetings, while 11% offer payments for ad hoc discussions and 6% provide compensation for regulatory engagements.
The findings showed that 99% of institutions provide insurance coverage for directors, including directors’ and officers’ liability, group personal accident, and travel insurance.
Medical benefits, such as inpatient, outpatient, dental, and wellness services, are offered by 56% of respondents.
Additionally, 33% of organisations reported supporting directors with learning and development programs, covering conference fees, certifications, and digital courses, beyond standard training requirements.
All institutions surveyed maintain audit and risk committees, as mandated by Bank Negara Malaysia (BNM).
However, nomination and remuneration committees – also required under BNM guidelines – were reported by 92% of participants. For some organisations, these functions are addressed at the group level, reducing the need for separate institutional committees.
Rahul Chawla, Aon’s partner and head of Talent Solutions for Southeast Asia, noted the increasing demands placed on company directors.
“There is increasing demand for quality talent in businesses not only at executive levels, but also at the company board level. Companies need directors who are experts in their respective fields and who can significantly impact the company’s growth and overall corporate governance,” he said.
The report also examined board diversity and tenure. It found that 87% of boards include at least one woman director, with 33% reporting three or more women serving on their boards. Age diversity showed that 67% of directors are over 60 years old, while 13% are over 80.
Tenure data revealed that 59% of independent NEDs have served between one and six years, while 48% of non-independent NEDs hold tenures ranging from one to nine years, reflecting a balance between new and experienced board members.
Datuk Kamaruddin Taib, chairman of FIDE FORUM, stressed the importance of remuneration in supporting good governance.
“Directors should be compensated in a manner that preserves the effectiveness of board oversight functions. After all, the primary role of a director is to uphold good governance – not only to ensure institutional performance but [also to protect] the interest of all stakeholders which is part of ensuring financial stability that [reinforces] confidence in financial institutions and markets,” he said.
