Increases to CEO Compensation Might Be Put On Hold For Now at Herald Holdings Limited (HKG:114)

As many shareholders of Herald Holdings Limited (HKG:114) will be aware, they have not made a gain on their investment in the past three years. However, what is unusual is that EPS growth has been positive, suggesting that the share price has diverged from fundamentals. These are some of the concerns that shareholders may want to bring up at the next AGM held on 17 September 2021. Voting on resolutions such as executive remuneration and other matters could also be a way to influence management. We think shareholders might be reluctant to increase compensation for the CEO at the moment, according to our analysis below.

Check out our latest analysis for Herald Holdings

How Does Total Compensation For Kam-Hung Shum Compare With Other Companies In The Industry?

According to our data, Herald Holdings Limited has a market capitalization of HK$399m, and paid its CEO total annual compensation worth HK$4.1m over the year to March 2021. That's a notable increase of 28% on last year. In particular, the salary of HK$2.60m, makes up a huge portion of the total compensation being paid to the CEO.

On comparing similar-sized companies in the industry with market capitalizations below HK$1.6b, we found that the median total CEO compensation was HK$2.3m. Hence, we can conclude that Kam-Hung Shum is remunerated higher than the industry median.

Component	2021	2020	Proportion (2021)
Salary	HK$2.6m	HK$2.5m	64%
Other	HK$1.5m	HK$624k	36%
Total Compensation	HK$4.1m	HK$3.2m	100%

On an industry level, around 78% of total compensation represents salary and 22% is other remuneration. It's interesting to note that Herald Holdings allocates a smaller portion of compensation to salary 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.

A Look at Herald Holdings Limited's Growth Numbers

Herald Holdings Limited's earnings per share (EPS) grew 108% per year over the last three years. Its revenue is down 2.0% over the previous year.

Shareholders would be glad to know that the company has improved itself over the last few years. The lack of revenue growth isn't ideal, but it is the bottom line that counts most in business. We don't have analyst forecasts, but you could get a better understanding of its growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

Has Herald Holdings Limited Been A Good Investment?

With a three year total loss of 9.0% for the shareholders, Herald Holdings Limited would certainly have some dissatisfied shareholders. So shareholders would probably want the company to be less generous with CEO compensation.

In Summary...

The fact that shareholders are sitting on a loss on the value of their shares in the past few years is certainly disconcerting. The stock's movement is disjointed with the company's earnings growth, which ideally should move in the same direction. If there are some unknown variables that are influencing the stock's price, surely shareholders would have some concerns. These concerns should be addressed at the upcoming AGM, where shareholders can question the board and evaluate if their judgement and decision making is still in line with their expectations.

CEO pay is simply one of the many factors that need to be considered while examining business performance. We did our research and identified 4 warning signs (and 1 which is a bit concerning) in Herald Holdings we think you should know about.

Of course, you might find a fantastic investment by looking at a different set of stocks. So take a peek at this free list of interesting companies.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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