In This Article:
Raymond Cheng is the CEO of Echo International Holdings Group Limited (SEHK:8218), which has recently grown to a market capitalization of HK$173.76M. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. Today we will assess Cheng’s pay and compare this to the company’s performance over the same period, as well as measure it against other SEHK-listed CEOs leading companies of similar size and profitability. Check out our latest analysis for Echo International Holdings Group
What has 8218’s performance been like?
Profitability of a company is a strong indication of 8218’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Cheng’s performance. Most recently, 8218 produced negative earnings of -HK$13.82M , which is a further decline from prior year’s loss of -HK$13.41M. Furthermore, on average, 8218 has been loss-making in the past, with a 5-year average EPS of -HK$0.01. In the situation of unprofitability the company may be facing a period of reinvestment and growth, or it can be a sign of some headwind. In any event, CEO compensation should emulate the current condition of the business. In the latest report, Cheng’s total compensation fell by a non-trivial rate of -21.44%, to HK$927.00K. Although I couldn’t find information on the breakdown of Cheng’s pay, if some portion were non-cash items such as stocks and options, then fluxes in 8218’s share price can impact the real level of what the CEO actually receives.
Is 8218’s CEO overpaid relative to the market?
While no standard benchmark exists, since compensation should account for specific factors of the company and market, we can gauge a high-level thresold to see if 8218 deviates substantially from its peers. This outcome can help shareholders ask the right question about Cheng’s incentive alignment. Generally, a SEHK small-cap has a value of HK$2.61B, generates earnings of HK$245M, and remunerates its CEO circa HK$3.3M annually. Usually I’d use market cap and profit as factors determining performance, however, 8218’s negative earnings lower the effectiveness of this method. Given the range of pay for small-cap executives, it seems like Cheng is paid aptly compared to those in similar-sized companies. Overall, though 8218 is loss-making, it seems like the CEO’s pay is reflective of the appropriate level.