Yahoo Finance Should You Worry About Hong Leong Finance Limited’s (SGX:S41) CEO Pay?
Leading Hong Leong Finance Limited (SGX:S41) as the CEO, Leng Kwek took the company to a valuation of S$1.21B. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. Today we will assess Kwek’s pay and compare this to the company’s performance over the same period, as well as measure it against other SGX-listed CEOs leading companies of similar size and profitability. View our latest analysis for Hong Leong Finance
What has S41’s performance been like?
Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Recently, S41 released an earnings of S$95.08M , which is an increase of 72.92% from its last year’s earnings of S$54.98M. This is a positive indication that S41 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 Kwek’s hard work. During the same period, Kwek’s total remuneration increased by a mere 0.37% to S$2.02M. Although I couldn’t find information on the breakdown of Kwek’s pay, if some portion were non-cash items such as stocks and options, then fluctuations in S41’s share price can affect the actual level of what the CEO actually receives.
What’s a reasonable CEO compensation?
While there is no cookie-cutter approach, since remuneration should be tailored to the specific company and market, we can gauge a high-level thresold to see if S41 is an outlier. This exercise helps investors ask the right question about Kwek’s incentive alignment. Typically, a SGX small-cap is worth around SG$396M, generates earnings of SG$29.7M, and pays its CEO at roughly SG$1.2M per annum. Accounting for S41’s size and performance, in terms of market cap and earnings, it seems that Kwek is paid on a similar level to other comparable SGX CEOs of profitable small-caps. This indicates that Kwek’s pay is fair.
Next Steps:
In the upcoming year’s AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose an executive pay raise. Will this raise take Kwek’s pay beyond the bound of reasonableness, or will it help in retaining the talented executive? Being proactive in governance decisions is a key part to investing, and collectively, investors can make a big difference. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
Governance: To find out more about S41’s governance, look through our infographic report of the company’s board and management.
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.
Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of S41? 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 pass 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.
