COMPENSATION & BENEFITS      CORPORATE GOVERNANCE

Singapore - HR practitioners need to play a larger role in corporate governance, especially after the global financial crisis and it starts with linking employee performance to compensation and risk management.

Lee Yee Ming, chief risk officer for Perbadanan Insurans Deposit Malaysia, a financial regulatory body for banks in Malaysia, says good governance starts with designing an effective "risk-adjusted" compensation scheme. "HR needs to play a larger role [in corporate governance] because compensation is an incentive and a fair compensation scheme is a key factor to drive people to work harder." But Lee says performance objectives need to be linked to compensation and risk management or there would be a "mismatch".

One of the causes of the global financial crisis was largely the mismatch of bonus payouts to bankers and the risks they were taking. Lee's opinion is that the people involved were being "paid too much" for taking risks. "If you reward [talent without adjusting for risks taken], if performance is not linked to code of ethics and risk management," she says. "People are given incentive to continue taking higher risks."

This is where HR needs to ensure every employee is practising the company's code of ethics because they are linked to talent management, explains Lee. "Organisations can have the best ethics in the world but if their people are not practising them and if the culture is not to uphold the ethics," she says. "You will fail because there is this disconnect."

But how should HR link compensation schemes to the code of ethics and risk management? While Lee doesn't have all the answers, she hopes more HR practitioners would step up to the plate soon. Perhaps they could look at gross revenue when adjusting bonus schemes, Lee suggested. "Do you look at targets achieved or do you look at both targets achieved and actual amount collected?"

If the employee didn't hit the sales target but managed to collect the full sales amount, is he a poorer performer than the one who exceeded sales target but 50% of what he sold was bad debts? Lee says there is a need for HR to be "at the top" influencing the senior management in designing fair rewards. "They need to give recommendation to the remuneration committee, because they need to send the right signals to the entire organisation."

But Marketing Magazine's associate sales manager Geraldine Quah begs to differ. She believes the example Lee gave wasn't a fair reflection of a salesperson's integrity or performance. "It is the finance [department] who is not aggressive enough in collecting payments."

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