Illustrator Dennis Balogh

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Rinaldi Firmansyah

How is executive compensation changing globally?

When it comes to rewarding exceptional executive achievement in Indonesia, corporations usually rely on annual bonuses, says Rinaldi Firmansyah, CEO of PT Telekomunikasi Indonesia TBK (TLK), the nation’s largest telecommunications provider. “Management share-option plans are not common here,” he says. “However, some companies, including ours, are working to introduce stock options.”

PT Telkom, one of two Indonesian companies that adhere to the governance rules set forth by the Sarbanes-Oxley Act of 2002 even though not required to, tried to introduce an executive stock-option plan in 2006, but it was rejected by shareholders. “There was no history, nothing to compare it to, no best practices to follow,” explains Firmansyah. “We need more time to make its merits clear.”

Despite government and popular backlash against high executive compensation in the U.S. and U.K., Firmansyah doesn’t expect the same in Indonesia. “For one thing, the compensation level between management and executives is not as wide as in developed countries,” he says. Firmansyah also expects that Indonesian companies will take an approach to awarding stock options that differs from that of their U.S. counterparts. “While our corporations may be based on capitalist principles, compensation is not,” he says, explaining that the corporate structure in Indonesia will continue to maintain a certain level of compensation equality. For example, in addition to a board of directors, a board of commissioners provides oversight on behalf of shareholders. “This structure,” Firmansyah says, “means shareholders have more say here.”

Pursuing a new stock-option plan is not a current priority, he says, adding that this could well change in the next two years as the market becomes more familiar with the concept. — John Boyd