Leading Poly Property Group Co Limited (HKG:119) as the CEO, Qingtao Han took the company to a valuation of HK$11.53b. 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 Han’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.

See our latest analysis for Poly Property Group

What has been the trend in 119’s earnings?

119 can create value to shareholders by increasing its profitability, which in turn is reflected into the share price and the investor’s ability to sell their shares at higher capital gains. Over the last year 119 produced a profit of HK$2.45b , which is an increase of 277% from its previous year’s earnings of HK$651.0m. This is a positive indication that 119 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 Han’s valued-adding activities. Over the same period Han’s total remuneration rose by 16.2% to HK$3.9m. Although I couldn’t find information on the breakdown of Han’s pay, if some portion were non-cash items such as stocks and options, then fluxes in 119’s share price can impact the true level of what the CEO actually collects at the end of the year.

What’s a reasonable CEO compensation?

Even though there is no cookie-cutter approach, as remuneration should account for specific factors of the company and market, we can determine a high-level base line to see if 119 is an outlier. This exercise helps investors ask the right question about Han’s incentive alignment. On average, a SEHK small-cap is worth around HK$2.61B, generates earnings of HK$245M, and pays its CEO at roughly HK$3.3M per annum. Allowing for 119’s size and performance, in terms of market cap and earnings, it seems that Han is paid in-line with the average SEHK small-cap CEO This could mean Han is paid a suitable level.

Next Steps:

Hopefully this article has given you insight on how shareholders should think about 119’s governance policies such as CEO pay. As an investor, you have the right to understand how the board thinks about management incentives, and also the right to vote for and against substantial CEO pay changes. Governance is a big factor in investing, and I encourage you to dig deeper into those that represent your voice on the board. If you have not done so already, I highly recommend you to complete your research by taking a look at the following: