“How Much is Hidden? Pay for Elites in Government Linked Entities (GLE’s)”

There is an urgent need for greater transparency in the disclosure of pay levels and practices for the directors of government-linked entities (GLEs), stresses a new book published by the Consumers Association of Penang (CAP).

The book, How Much Is Hidden?: Pay for Elites in Government-Linked Entities, issues this call amid public concern over the substandard performance of some GLEs and recognition of the need for proper use of government resources in the current challenging economic environment.

GLEs include government-linked investment companies (GLICs) and government-linked companies (GLCs) as well as statutory bodies, foundations, special purpose vehicles, development financial institutions and various state-level agencies.

Well-documented cases of underperformance at some prominent GLEs have raised questions on the competency of their boards of directors and the appropriateness of their remuneration practices. There is thus a need to ensure that the performance of GLE directors in governing and managing these entities is commensurate with their pay levels. Towards this end, there should be clarity not only on how performance is measured but also on the board pay amounts awarded.

The book finds that, in 2017, each GLE executive director (including the CEOs) earned on average as much as the total minimum wages of 308 employees. Further, the median of GLE non-executive directors’ pay grew by 19.9% from 2016 to 2017, while the growth rate of median salaries and wages of employees was only 7.7%.

These figures give rise, among others, to questions about pay disparity. For example, does a GLE executive director work 308 times harder than the lowest-paid employee? Is this wide top-bottom pay gap justifiable from the standpoints of equity and efficiency? And how does this square with the recently unveiled Shared Prosperity Vision that calls for fairer distribution of resources?

According to the book, the payment of bonuses, which unlike salaries are not fixed in amount, can be subject to abuse. Therefore, huge bonus sums may also need to come under scrutiny. The highest estimated bonus-to-salary ratios uncovered in the book are: 618% (in financial year 2015) for the Acting President and CEO of S P Setia Bhd; 600% (FY 2017) for the Managing Director and CEO of IHH Healthcare Berhad; and 433% (FY 2017) for the CEO of Telekom Malaysia Berhad.

The authors of How Much Is Hidden?, UK-based accounting and finance academics Marizah Minhat and Nazam Dzolkarnaini, caution however that the book’s findings, which cover the 2013-2017 financial period, are based on a limited amount of information and exercise of judgement by the data collector. This is precisely due to inadequate and inconsistent reporting of GLE directors’ pay, which only underlines the need for more transparency in this area.

For instance, as the book notes, leading GLEs like Khazanah Nasional Berhad, Permodalan Nasional Berhad (PNB) and Malaysia Airlines Berhad do not publicly report their directors’ remuneration. For some GLEs such as PETRONAS and the Employees Provident Fund (EPF) which do report this, the disclosure falls short of adequate detail. Disclosure practices are also inconsistent among different GLEs; e.g., some GLEs lump together several pay components in a single figure. On top of this, complex pay components like share options awarded to directors are often insufficiently disclosed and their fair value hidden or omitted. 

In light of its findings, the book flags a number of key concerns. Firstly, unlisted GLEs are not subject to disclosure requirements despite the fact they have benefited from and are entrusted to manage public resources. Secondly, for many listed GLEs, more reliable estimates of each board pay component (salaries, fees, allowances, bonuses, share options/grants, postretirement pay, benefits-in-kind) and of variable-to-fixed pay ratios are not available due to pay disclosures being made on an aggregated basis across several components. In addition, the book also reveals some instances of seemingly extravagant perks and benefits granted to GLE directors, questioning whether such awards are justified from an economic perspective.

To remove the opacity surrounding GLE directors’ remuneration, Marizah and Nazam propose a standardised pay disclosure format for all GLEs, which could be modelled along the lines of the UK’s Directors’ Remuneration Report Regulations. Greater transparency will allow for more informed and effective scrutiny by the public, who are the ultimate stakeholders of GLEs. This would be in line with the public’s interest in improving GLE governance and ensuring resources are managed efficiently on their behalf.

Click here to purchase book

PRESS RELEASE, 17th October 2019

Losing sharks and rays will have unintended consequences  

Sahabat Alam Malaysia (SAM) is devastated to learn that Malaysia had voted against the protection of shark species at risk of extinction.  The fate of the world’s sharks is in the hands of the top 20 shark catchers, Malaysia included, many of whom have failed to demonstrate what  they are doing to save these imperiled species. They need to take action to stop the decline in shark populations and help ensure that the list of species threatened by overfishing and over finning does not continue to grow.

The commitment by the proponent countries to conserve some of the oceans awe inspiring creatures at risk of extinction is  commendable.  However the protection of sharks and rays under the  Convention on International Trade in Endangered Species (CITES) is not a ban on the 18 shark species, but rather to control trade to ensure that international trade in sharks and shark-like fish does not drive them to extinction.

Malaysia does not concede to the proposal by CITES on grounds that those types of fish are only by-catches, and not specifically hunted down.  How it arrived at this position is based on the views of shark experts  in South East Asia.  Of course there were other  reasons such as  objection from most  Asean nations, and the findings by the United Natons’ Food and Agriculture Organisation (FAO) that these sharks were not suitable for protection as it did not meet certain criteria.

In Malaysia however sharks,  which come under CITES can be consumed because they are listed as  ‘fish’ under the Fisheries Act under the Ministry of Agriculture (MOA).  The MOA  is more into food, protein and consumption rather than protection of  species.

This is rather unfortunate that sharks are defined as fish.  The high market demand for shark fin is currently the main driver of unsustainable fishing for sharks.  Many shark species are now threatened and continue to decline because of unregulated fishing.

A  2017 study by the wildlife trade monitoring NGO, Traffic, ranked Malaysia as the third largest  importer of shark fins by volume, behind Hong Kong and mainland China.  The same study also noted the mako shark as the second most  traded species of sharks, the same species Malaysia voted against imposing trade regulations on.  Whether cause as by-catch or as targeted species, few controls are in place to limit the harvest levels of all sharks in East Malaysia and it is unclear whether the current levels of extraction are sustainable for all or certain shark species.

Losing more sharks and rays could have unintended consequences since they are top ocean predators and help to balance the ecosystems.

Shark conservation is a growing global concern requiring implementable solutions to end the loss of large numbers of shark populations.  Banning shark finning alone does not solve the problem as sharks are still being fished at an unsustainable level.  What is needed is a ban on shark fishing not just shark finning.

 

Letter to Editor, 12 September 2019

CAP Decries the Institutional Blindness to Poverty and Calls for Urgent RCI

CAP is pleased to note that senior parliamentarian YB Lim Kit Siang has supported CAP’s call on 3 September 2019 for a Royal Commission of Inquiry (RCI) to be formed to address the poverty scandal highlighted by UN special rapporteur on extreme poverty and human rights, Professor Philip Alston.

Ever since Professor Alston’s expose that our poverty rate is a shocking 15% or higher, information has appeared in the public media that this issue has been raised numerous times in the past by various policy experts. This includes a February 2018 study published by UNICEF and DM Analytics that found that almost all of the children living in low-cost apartments in KL were in relative poverty and seven percent were in absolute poverty. To quote the UNICEF study:

“While the national poverty rate is less than one percent, and almost eradicated in Kuala Lumpur, these indicators unfortunately mask the rich information content of empirical case studies based on the reality of the situation on the ground. While Kuala Lumpur has an income per capita equal to developed countries, the children residing in its low-cost flats are not doing well. The study finds that about 22 per cent of children below the age of five are stunted, 15 per cent are underweight and 23 per cent are either overweight or obese.”

Similarly, in a recent statement by the World Bank it has emerged that Professor Martin Ravallion, renowned poverty scholar and former World Bank official, had raised alarm bells about the questionable poverty measurement data utilized by the Government. It is important to note that his observation was made while he was holding the Royal Ungku Aziz chair of Poverty Studies at Universiti Malaya (UM).

In his statement YB Lim Kit Siang listed various experts, institutions and parliamentarians – such as YB Nurul Izzah, YB Charles Santiago, Professor Ragayah Haji Mat Zain and the Khazanah Research Institute (KRI) – who have raised this issue repeatedly in the past.

CAP is shocked by this observation because it shows that despite calls by highly credible experts – both Malaysian and international – to address this serious issue, their calls had fallen on deaf ears as witnessed by the MEAs response to Professor Alston’s statement last week. The Government appears to be oblivious to the poverty scandal in their hands.

What it exposes is that the problem is not simply about poverty measurement, but about the institutional blindness in Government to recognize and address our poverty issue.

What is the cause of this institutional blindness? Why are the guardians of policy-making not listening to the concerns of the experts, much less the voices of the poor? Is it a matter of bureaucratic incompetence or structural administrative failure? Is it the outcome of political interference and elite-capture that entrench the marginalization of particular vulnerable communities? Or is it institutional racism? These questions need to be addressed and answered comprehensively.

More worryingly, these same blind institutions are formulating policies, programs and budgets to spend public funds for development. At this very moment they are busy planning the 12th Malaysia Plan. How can the public be assured that these policies will be designed based on an accurate understanding of poverty and development outcomes? How can we ensure that marginalized communities in Sabah and Sarawak, or the Orang Asli, or populations dispossessed by property development projects, or struggling members of the B40, or our youth in the gig economy are able to be counted and made legible for public policies that will bring real tangible benefits?

CAP reiterates the urgency of the matter and calls once again for the setting up of a Royal Commission of Inquiry (RCI). It is important to ensure that the composition of the RCI is made up of a broad base of experts with credible academic and practical expertise. They should resist recycling former technocrats and tap instead the insights from younger and fresher poverty scholars and practitioners. This should include members of NGOs with extensive practical insights working with poor communities, established academics with background not only in economics but also other branches of the social sciences, and internationally experienced experts from multilateral organizations such as the World Bank and the UN.

Given the urgency of the issue as it impacts upon the way Government budgets are allocated and policies formulated, with serious consequences to the poor on the ground, CAP reiterates its call to the Government to set up an RCI to investigate this scandal with three key objectives:

1. To establish an accurate picture of poverty in Malaysia

2. To identify institutional weaknesses in developing effective development and poverty alleviation policies

3. To recommend urgent reforms of the Government delivery system to ensure that it is poverty focused, is supported by a strong local governance framework and consistent with the Government vision of a Shared Prosperity.

CAP calls for a Royal Commission of Inquiry into Malaysia’s poverty scandal

We refer to our Press Statement that was sent out on 3rd September titled ‘CAP calls for a Royal Commission of Inquiry into Malaysia’s poverty scandal’.

Please refer to para 5 of our statement,

According to the Prime Minister’s economic adviser, Dr Muhammed Abdul Khalid, official data shows that states like Johor, Melaka, Selangor, Kuala Lumpur and Putrajaya had 0% poverty. One only needs to look at the increasing number of homeless children and the long lines at the soup kitchens in the heart of Kuala Lumpur or Kota Kinabalu or Johor Bharu to know that the official poverty rate cannot be so low. Unless, of course, our officials are blind to what is happening at the ground and are deaf to the plight of the poor.

We wish to clarify that Dr Muhammed Abdul Khalid was quoting from the official data of the Ministry of Economic Affairs (MEA). In his comment he had also stated that there is a need for Malaysia to change the current method to measure poverty rate.

We would appreciated it if you could print the necessary clarification. We thank you for your assistance and cooperation.

Thank you.

 

September 10, 2019

Are we having a ‘fire-sale’?

With the anti-government protest going on in Hong Kong, Malaysian developers are making a beeline to attract Hong Kong investors to buy properties here. This may ease the overhang in the local property market but it is not going to solve housing problems faced by our people.

Penang, Selangor, and Johor have set the highest minimum property prices for foreigners to acquire properties. For Selangor and Johor the prices are from RM2 million upwards for residential unit.

Foreigners are not permitted to buy in Penang landed houses valued less than RM3 million and high-rise units that are less than RM1 million. They can only buy landed property valued at a minimum of RM1 million and high-rise units at RM500,000 in Seberang Perai.

From the introduction of Malaysia My Second Home (MM2H) policy in 2002 till 2018, there have been 42,271 approved participants from 130 countries.

The currency equivalence chart below shows why our property market can be considered a ‘fire sale’ to foreigners:

What is the property a Hong Kongese can buy with HK$6 million (RM3.2 million)? According to Demographia (2019), Hong Kong is the least affordable housing market in the world. In 2016, a 292 sq ft studio apartment (called ‘nano-flats’) was sold for HK$6 million. In 2018, a 178 sq ft micro-home cost HK$3.5 million (RM1.8 million).

For those with US dollars or Singapore dollars to spare, our RM3 million is equivalent to US$718,787 or S$995,405 respectively. With RM3 million (HK$5.6 million), a Hong Kongese is able to buy an almost 2,000 sq ft (built-up size) luxurious bungalow in Tanjung Bungah and that is almost 11 times the size of Hong Kong’s 178 sq ft micro-home.

It is little wonder that Singaporeans came to Penang on a shopping spree for pre-war houses around 2008 when George Town was declared a UNESCO World Heritage area. As a result the prices of houses in the inner city of George Town soared beyond the affordability of most locals to rent or buy.

Encouraging foreigners to acquire properties here have undesired impacts such as causing property prices to skyrocket because of demand, aggravating the current shortage of land, and causing an increase in the cost of living.

Will Penang become another Hong Kong where the poor will eventually be forced into slums or micro-flats when property prices become too expensive for an ordinary wage earner or senior citizens?

Instead of pandering to developers wanting to build luxurious houses and condominiums that few locals can afford, the government should focus on the development of Rent-to-Own flats, low-cost and ‘affordable’ housing for the poor. Could the current property overhang be caused by developers’ over optimism about the housing market without looking at the economic reality and the inability of potential house buyers to obtain a bank loan?

The government should revamp the entire housing policy that is not benefitting the lower income group and enables developers to profiteer in providing low-cost housing. Often a low-cost flat supposedly tagged at RM72,500 is sold at a much higher price, sometimes more than RM120,000. The cost of renovation and car park not requested by the buyer is factored into the price. The buyer is given the choice either to accept the package or lose the offer. The developers are building low-cost and ‘affordable’ homes just to fulfil the government regulations and attempt to circumvent them whenever possible to milk the B40s and those who are in dire need of roofs over their heads.

We urge the government to put in place a housing policy that would enable the B40 to have accommodation without a financial burden. The Malaysia My Second Home policy should be scrapped. Also, the authorities must ensure that low cost and medium cost house are of liveable quality and are sold at the price fixed by the government.

 

Press Statement,  10 September 2019