KUALA LUMPUR, Feb 4 — The total salary package for chief executive officers (CEOs) and key top management staff in Malaysia is on the rise as more organisations are shifting to performance-linked incentives and long-term rewards in the compensation mix.

Hay Group Malaysia, the global management consulting organisation, said in a report that the era of fixed salaries for firms operating in Malaysia was waning while bonuses were seen as incentives which 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.

Hay Group Malaysia is part of a global management consulting organization 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 total remuneration packages for several major organisations and one bit of critical learning has been that stock options were not always seen as attractive perks any more. 

“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 has seen far better results when such long-term incentives were customised and tailored 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 within Malaysia, as most of them are not aiming to be floated in any case. 

“This creates a challenge - how do you craft long-term incentives to spur a CEO to grow the company?” he asked. 

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 target are achieved and continuous growth of those targets are also maintained over a set number of years,” he said.

Shahrizal said such a long-term incentives were 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