Shariah Committees’ Remuneration Disclosure Transparency by Islamic banks in Malaysia

Abstract

This study explores the issue of Shariᶜah Committees’ remuneration disclosure as reported by the Islamic financial institutions in the annual reports in Malaysia. Shariᶜah Committees are central to Islamic financial structure and they play a substantial role in the efficient functioning of the financial system. This paper also aims to provide an understanding as to whether current Shariᶜah Committees’ remuneration disclosure practiced by the banks are able to achieve the demands of shareholders in assisting them to improve on transparency. The extent and nature of Shariᶜah Committees’ remuneration disclosure are gathered from the content analysis of annual reports of 16 Islamic banks for the year of 2014, 2015, 2016 and 2017. To clarify the factors that could affect board decisions about the level of discretionary disclosure details concerning Shariᶜah Committees’ remuneration. The paper discusses the need for improving transparency through sufficient, valid and pertinent disclosure of Shariᶜah Committees’ remuneration in the annual reports by Islamic financial institutions. What is required is not necessarily only the disclosure of the total remuneration paid to the Shariᶜah Committee individually, but it should consist an explanation, in plain and comprehensible language, of how remuneration is used to ensure Shariᶜah Committees successfully delivering on the key performance indexes connected to the strategic vision of the Islamic banks. This paper also will divide to two categories of disclosure which is qualitative and quantitative disclosure.