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Yvette Ong took the helm as Mongolia Energy Corporation Limited’s (SEHK:276) CEO and grew market cap to HK$361.20M recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. I will break down Ong’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 Mongolia Energy
What has 276’s performance been like?
Earnings is a powerful indication of 276’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Ong’s performance in the past year. Recently, 276 produced negative earnings of -HK$247.30M . However, this is an improvement on prior year’s loss of -HK$825.46M, which may signal a turnaround since 276 has been loss-making for the past five years, on average, with an EPS of -HK$1.53. Given earnings are moving the right way, CEO pay should mirror Ong’s hard work. In the same year, Ong’s total compensation dropped by -16.82%, to HK$4.21M. In addition to this, Ong’s pay is also made up of 23.55% non-cash elements, which means that variabilities in 276’s share price can move the true level of what the CEO actually collects at the end of the year.
Is 276’s CEO overpaid relative to the market?
Even though there is no cookie-cutter approach, as compensation should be tailored to the specific company and market, we can fashion a high-level base line to see if 276 is an outlier. This outcome can help shareholders ask the right question about Ong’s incentive alignment. Typically, a SEHK small-cap is worth around HK$2.61B, produces earnings of HK$245M, and pays its CEO at roughly HK$3.3M per annum. Normally I would look at market cap and earnings as a proxy for performance, however, 276’s negative earnings reduces the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Ong’s pay exceeds its peer group.
What this means for you:
In the upcoming year’s AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose another executive pay raise. Although this analysis is relatively simplified, the fact that Ong’s pay is above its peer group should raise questions as to why this may be the case. If you have not done so already, I highly recommend you to complete your research by taking a look at the following: