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by Lim Guan Eng
(Petaling Jaya, Thursday): DAP urges Prime Minister Datuk Seri Abdullah Ahmad Badawi to adopt a pay for performance concept amongst GLCs to ensure not only maximization of profits and returns on capital employed but GLCs and Malaysia into global champions. If top executives of loss-making GLCs continued to be highly paid, it will send out a wrong message about the government’s commitment and seriousness in making our GLCs profitable and efficient.
The latest Malaysian Business report on August 16 – 31st 2005, revealed that in 2004, GLCs top executives were paid between RM 500,000 to RM 2.65 million regardless whether they were making money or had a reasonable return on capital employed. A GLC Sime Engineering Services’ paid the company directors a total of RM 1,129,000 and its top executive, Md Ja’afar Abdul Carrim up to RM 550,000, despite the company losing RM 71.2 million.
Malaysians will not be too impressed that company directors of GLCs get paid so highly for losing money. Nor will they be impressed that in 2004, Tenaga Nasional Bhd directors get paid RM 1,685,243 despite Tenaga recording the lowest return on capital employed amongst powe companies in the region of 5.2%. Or that the top MAS executive Datuk Ahmad Fuaad Mohd Dahalan (who recently resigned) was paid RM 898,000 and the company directors paid RM 1,463,000 despite recording losses RM281 million in its first quarter ended June 30, 2005.
GLCs contribute RM260 billion (US$69 billion), or 36 per cent of Malaysia’s market capitalisation, and employ five per cent of its workforce. Some of the major GLCs include Malayan Banking, Telekom Malaysia, Malaysia Airlines, Tenaga Nasional, and Sime Darby. As GLCs are key players in the economy, accounting for about one-third of total market capitalisation of Bursa Malaysia, the GLCs’ performance are expected not only to improve their efficiency and profitability to compete in the global environment but also set the benchmark for other companies to follow.
This unfortunate and irresponsible tendency to continue to reward executives who do not perform has spread to some publicly-listed companies such as Rashid Hussain which paid out its top executive Datuk Sri Sulaiman Abdul Rahman Taib more than RM 13.5 million despite the company’s losses of RM 21.5 million in 2004. Datuk Sri Sulaiman’s pay rose by 214% from RM 4.3 million in 2003 to RM 13.5 million in 2004 despite Rashid Hussain’s RM 21.5 million losses.
Investors and shareholders should question why so much is paid out when the company is losing money unlike profitable companies such as Genting and Resort World which paid out RM 63.9 million and RM 32.2 million respectively to its top executive, Tan Sri Lim Kok Thay. Shareholders will not begrudge the RM 7.8 million to Datuk Steven Tan or RM 9,142,000 paid to all its directors or even any other additional bonuses paid to reporters for the good performance in The Star newspaper that earned a net profit of RM 141.3 million in 2004.
However, for top executives who gets a 214% pay rise to RM 13.5 million when the company is losing money requires a full explanation in the interests of accountability and transparency. The time has come for GLCs to set a good example of rewarding its top executives who perform.
For GLCs to set a benchmark of excellence requires a culture based on four key performance aspects that is:
o ethically-centred; and
o with corporate social responsibility.
For too long the lack of a results-driven approach has hampered the maximization of profits. Top managers should be on a basic salary subject to a performance bar where they will not be given any allowances and incentives or even sacked if they fail to achieve a certain level of profits or a minimal percentage of rate of return on capital employed.
If these corporate reforms are successful over the next five to seven years, shares of high-performing GLCs could gain between RM250 billion and RM300 billion. To do so, DAP suggests that the government incorporate these 4 key performance aspects to ensure that GLCs not only make money as global champions but contribute positively towards the well-being and a better standard of living for Malaysians.