Shau-kee Lee is the CEO of Henderson Land Development Company Limited (HKG:12), which has recently grown to a market capitalization of HK$181.33b. 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 Lee’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.

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What has 12’s performance been like?

Profitability of a company is a strong indication of 12’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Lee’s performance. Recently, 12 delivered a profit of HK$32.39b , which is an increase of 17.9% from its previous year’s earnings of HK$27.46b. This is a positive indication that 12 has strived to maintain a good track record of profitability in the face of any headwinds. Since earnings are heading towards the right direction, CEO pay should be reflective of Lee’s valued-adding activities. During this period Lee’s total compensation rose by a mere 2.1% to HK$22.5m. Although I couldn’t find information on the breakdown of Lee’s pay, if some portion were non-cash items such as stocks and options, then fluxes in 12’s share price can impact the true level of what the CEO actually collects at the end of the year.

Is 12 overpaying the CEO?

While no standard benchmark exists, since remuneration should be tailored to the specific company and market, we can determine a high-level benchmark to see if 12 deviates substantially from its peers. This outcome can help shareholders ask the right question about Lee’s incentive alignment. On average, a SEHK large-cap is worth around HK$200B, generates earnings of HK$16.1B and remunerates its CEO circa HK$14.9M per annum. Based on 12’s size and performance, in terms of market cap and earnings, it appears that Lee is paid in-line with other SEHK CEOs of large-caps, on average. This indicates that Lee’s pay is fair.

Next Steps:

In order to determine whether or not you should invest in 12, your thesis should be built on fundamentals. Even though CEO pay isn’t technically a key concern, it could serve as an indication as to how board members align incentives and how they think about setting policies. These issues directly impacts how 12 makes money, and factors impacting your return on investment. If you have not done so already, I urge you to complete your research by taking a look at the following:

1. Governance: To find out more about 12’s governance, look through our infographic report of the company’s board and management.

2. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.

3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of 12? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.