KUALA LUMPUR: The total salary packages of chief executive officers (CEOs) and key top management staff in Malaysia are on the rise as more firms are shifting to performance-linked incentives and long-term rewards.
Hay Group Malaysia said in a report that the era of fixed salaries was waning while bonuses were seen as incentives that were too short-term focused.
“Contrary to public perception, CEOs’ total salary benchmarks are not always linked to an outfit’s profitability,” Hay Group Malaysia director Shahrizal Suffian said in a statement yesterday.
Hay Group Malaysia is part of a global management consulting organisation that works with leaders to transform strategy into reality.
“Market reach, customer service levels and other business aims have become more important as firms are embracing a more holistic outlook, recognising profits are positive outcomes when key performance targets are achieved,” he said.
Shahrizal said Hay Group Malaysia has been involved in the crafting of CEO remuneration packages for several major firms and one lesson has been that stock options were not always seen as attractive perks.
“Historically, many companies had stock options because of herd mentality. Such a simplistic formula doesn’t always spur the CEO to drive growth,” he said.
Shahrizal noted that the group saw far better results when such long-term incentives were customised to business strategies, after factoring in the firm’s culture and operating nuances.
“This is especially in the case of unlisted firms, which form the majority of outfits in Malaysia, as most of them are not aiming to be floated.
“This creates a challenge — how do you craft long-term incentives to spur a CEO to grow the company?”
Shahrizal said one possible solution would be sophisticated profit-sharing models with features like hurdle rates and tiering of profits to trigger rewards.
“It should also include a retention mechanism which allows the firm to better manage its cash flow like ‘bonus banking’ where CEOs don’t get to touch the rewards unless the company’s targets are achieved and continuous growth of those targets are also maintained over a set number of years,” he said.
Shahrizal said such long-term incentives are especially useful for firms seeking to turn around operations and reduce losses as they would otherwise be unable to offer enough to attract top talents.
“Such a strategy could work provided the CEO is able to institute within the firm the right team behaviour required and the incentives design needs to be complemented by the necessary enablers,” said Shahrizal. — Bernama
This article first appeared in The Edge Financial Daily, on February 5, 2014.
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