How Should Investors React To Fountain Set (Holdings)’s (HKG:420) CEO Pay?

Yao Zhao has been the CEO of Fountain Set (Holdings) Limited (HKG:420) since 2015, and this article will examine the executive’s compensation with respect to the overall performance of the company. This analysis will also evaluate the appropriateness of CEO compensation when taking into account the earnings and shareholder returns of the company.

See our latest analysis for Fountain Set (Holdings)

How Does Total Compensation For Yao Zhao Compare With Other Companies In The Industry?

According to our data, Fountain Set (Holdings) Limited has a market capitalization of HK$1.1b, and paid its CEO total annual compensation worth HK$4.8m over the year to December 2019. This means that the compensation hasn’t changed much from last year. In particular, the salary of HK$3.30m, makes up a huge portion of the total compensation being paid to the CEO.

In comparison with other companies in the industry with market capitalizations under HK$1.6b, the reported median total CEO compensation was HK$2.3m. Accordingly, our analysis reveals that Fountain Set (Holdings) Limited pays Yao Zhao north of the industry median.

Component20192018Proportion (2019)
Salary HK$3.3m HK$3.3m 68%
Other HK$1.5m HK$1.5m 32%
Total CompensationHK$4.8m HK$4.8m100%

On an industry level, around 92% of total compensation represents salary and 7.5% is other remuneration. In Fountain Set (Holdings)’s case, non-salary compensation represents a greater slice of total remuneration, in comparison to the broader industry. If salary is the major component in total compensation, it suggests that the CEO receives a higher fixed proportion of the total compensation, regardless of performance.

SEHK:420 CEO Compensation August 1st 2020

Fountain Set (Holdings) Limited’s Growth

Fountain Set (Holdings) Limited’s earnings per share (EPS) grew 2.9% per year over the last three years. It saw its revenue drop 12% over the last year.

We would argue that the lack of revenue growth in the last year is less than ideal, but the modest EPS growth gives us some relief. In conclusion we can’t form a strong opinion about business performance yet; but it’s one worth watching. Although we don’t have analyst forecasts, you might want to assess this data-rich visualization of earnings, revenue and cash flow.

Has Fountain Set (Holdings) Limited Been A Good Investment?

With a total shareholder return of 17% over three years, Fountain Set (Holdings) Limited shareholders would, in general, be reasonably content. But they probably don’t want to see the CEO paid more than is normal for companies around the same size.

To Conclude…

As we touched on above, Fountain Set (Holdings) Limited is currently paying its CEO higher than the median pay for CEOs of companies belonging to the same industry and with similar market capitalizations. But the company lacks earnings per share growth, and returns to shareholders are less than stellar, over the last three years. So while shareholders might not be overly concerned about CEO compensation, we suspect most would prefer to see improved performance, before thinking a bump in pay is in order.

CEO compensation can have a massive impact on performance, but it’s just one element. That’s why we did some digging and identified 2 warning signs for Fountain Set (Holdings) that investors should think about before committing capital to this stock.

Switching gears from Fountain Set (Holdings), if you’re hunting for a pristine balance sheet and premium returns, this free list of high return, low debt companies is a great place to look.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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