Yao Zhao has been the CEO of Fountain Set (Holdings) Limited (HKG:420) since 2015. This report will, first, examine the CEO compensation levels in comparison to CEO compensation at companies of similar size. After that, we will consider the growth in the business. Third, we'll reflect on the total return to shareholders over three years, as a second measure of business performance. This process should give us an idea about how appropriately the CEO is paid.

Check out our latest analysis for Fountain Set (Holdings)

How Does Yao Zhao's Compensation Compare With Similar Sized Companies?

Our data indicates that Fountain Set (Holdings) Limited is worth HK$1.4b, and total annual CEO compensation was reported as HK$4.8m for the year to December 2019. While we always look at total compensation first, we note that the salary component is less, at HK$3.3m. When we examined a selection of companies with market caps ranging from HK$775m to HK$3.1b, we found the median CEO total compensation was HK$2.3m.

Now let's take a look at the pay mix on an industry and company level to gain a better understanding of where Fountain Set (Holdings) stands. Talking in terms of the sector, salary represented approximately 87% of total compensation out of all the companies we analysed, while other remuneration made up 13% of the pie. Fountain Set (Holdings) does not set aside a larger portion of remuneration in the form of salary, maintaining the same rate as the wider market.

It would therefore appear that Fountain Set (Holdings) Limited pays Yao Zhao more than the median CEO remuneration at companies of a similar size, in the same market. However, this fact alone doesn't mean the remuneration is too high. We can better assess whether the pay is overly generous by looking into the underlying business performance. The graphic below shows how CEO compensation at Fountain Set (Holdings) has changed from year to year.

Is Fountain Set (Holdings) Limited Growing?

Over the last three years Fountain Set (Holdings) Limited has seen earnings per share (EPS) move in a positive direction by an average of 7.6% per year (using a line of best fit). It saw its revenue drop 12% over the last year.

I would argue that the lack of revenue growth in the last year is less than ideal, but the improvement in EPS is good. These two metric are moving in different directions, so while it's hard to be confident judging performance, we think the stock is worth watching. Although we don't have analyst forecasts shareholders might want to examine this detailed historical graph of earnings, revenue and cash flow.

Has Fountain Set (Holdings) Limited Been A Good Investment?

Boasting a total shareholder return of 48% over three years, Fountain Set (Holdings) Limited has done well by shareholders. This strong performance might mean some shareholders don't mind if the CEO were to be paid more than is normal for a company of its size.

In Summary...

We compared the total CEO remuneration paid by Fountain Set (Holdings) Limited, and compared it to remuneration at a group of similar sized companies. As discussed above, we discovered that the company pays more than the median of that group.

While we generally prefer to see stronger EPS growth, there's no arguing with the strong returns to shareholders, over the last three years. So, considering these tasty returns, the CEO compensation may be quite appropriate. Looking into other areas, we've picked out 1 warning sign for Fountain Set (Holdings) that investors should think about before committing capital to this stock.

Arguably, business quality is much more important than CEO compensation levels. So check out this free list of interesting companies, that have HIGH return on equity and low debt.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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