Kin Ho is the CEO of Ever Smart International Holdings Limited (SEHK:8187), which has recently grown to a market capitalization of HK$950.40M. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. I will break down Ho’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 Ever Smart International Holdings
What has 8187’s performance been like?
Earnings is a powerful indication of 8187’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Ho’s performance in the past year. Most recently, 8187 delivered negative earnings of -HK$11.2M , which is a further decline from prior year’s loss of -HK$1.0M. Additionally, on average, 8187 has been loss-making in the past, with a 5-year average EPS of -HK$0. During times of negative earnings, the company may be incurring a period of reinvestment and growth, or it can be an indication of some headwind. Regardless, CEO compensation should emulate the current state of the business. From the latest report, Ho’s total remuneration dropped by a significant rate of -22.84%, to HK$2,894,000. Although I couldn’t find information on the breakdown of Ho’s pay, if some portion were non-cash items such as stocks and options, then fluxes in 8187’s share price can affect the real level of what the CEO actually receives.
Is 8187’s CEO overpaid relative to the market?
Though there is no cookie-cutter approach, since compensation should be tailored to the specific company and market, we can gauge a high-level thresold to see if 8187 is an outlier. This exercise helps investors ask the right question about Ho’s incentive alignment. Generally, a SEHK small-cap is worth around HK$2.61B, generates earnings of HK$245M, and remunerates its CEO circa HK$3.3M per annum. Normally I would use earnings and market cap to account for variations in performance, however, 8187’s negative earnings lower the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Ho is paid aptly compared to those in similar-sized companies. On the whole, although 8187 is loss-making, it seems like the CEO’s pay is reflective of the appropriate level.