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Qiang Wang took the helm as Unitas Holdings Limited’s (SEHK:8020) CEO and grew market cap to HK$368.47M 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 Wang’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 Unitas Holdings
What has been the trend in 8020’s earnings?
Profitability of a company is a strong indication of 8020’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Wang’s performance. Over the last year 8020 produced negative earnings of -HK$194.01M , compared to the previous year’s positive earnings. However, on average, 8020 has been loss-making in the past, with a 5-year average EPS of -HK$0.016. In the situation of unprofitability the company may be going through a period of reinvestment and growth, or it can be a sign of some headwind. In any case, CEO compensation should represent the current state of the business. In the latest report, Wang’s total compensation increased over two-fold, to HK$629.00K , although off a low base. Although I couldn’t find information on the composition of Wang’s pay, if some portion were non-cash items such as stocks and options, then fluctuations in 8020’s share price can affect the true level of what the CEO actually collects at the end of the year.
Is 8020 overpaying the CEO?
While no standard benchmark exists, as compensation should account for specific factors of the company and market, we can gauge a high-level thresold to see if 8020 is an outlier. This exercise can help direct shareholders to ask the right question about Wang’s incentive alignment. Normally, a SEHK small-cap is worth around HK$2.61B, produces earnings of HK$245M, and pays its CEO circa HK$3.3M per year. Typically I would use earnings and market cap to account for variations in performance, however, 8020’s negative earnings lower the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Wang is paid aptly compared to those in similar-sized companies. Putting everything together, even though 8020 is unprofitable, it seems like the CEO’s pay is appropriate.