Should Shareholders Reconsider NewOcean Energy Holdings Limited's (HKG:342) CEO Compensation Package?

NewOcean Energy Holdings Limited (HKG:342) has not performed well recently and CEO Lawrence Shum will probably need to up their game. At the upcoming AGM on 09 August 2021, shareholders can hear from the board including their plans for turning around performance. They will also get a chance to influence managerial decision-making through voting on resolutions such as executive remuneration, which may impact firm value in the future. The data we present below explains why we think CEO compensation is not consistent with recent performance.

See our latest analysis for NewOcean Energy Holdings

How Does Total Compensation For Lawrence Shum Compare With Other Companies In The Industry?

At the time of writing, our data shows that NewOcean Energy Holdings Limited has a market capitalization of HK$587m, and reported total annual CEO compensation of HK$978k for the year to December 2020. That's a notable decrease of 14% on last year. Notably, the salary which is HK$960.0k, represents most of the total compensation being paid.

In comparison with other companies in the industry with market capitalizations under HK$1.6b, the reported median total CEO compensation was HK$915k. This suggests that NewOcean Energy Holdings remunerates its CEO largely in line with the industry average. Moreover, Lawrence Shum also holds HK$23m worth of NewOcean Energy Holdings stock directly under their own name, which reveals to us that they have a significant personal stake in the company.

Component	2020	2019	Proportion (2020)
Salary	HK$960k	HK$1.1m	98%
Other	HK$18k	HK$18k	2%
Total Compensation	HK$978k	HK$1.1m	100%

On an industry level, around 93% of total compensation represents salary and 7% is other remuneration. Investors will find it interesting that NewOcean Energy Holdings pays the bulk of its rewards through a traditional salary, instead of non-salary benefits. 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.

NewOcean Energy Holdings Limited's Growth

Over the last three years, NewOcean Energy Holdings Limited has shrunk its earnings per share by 107% per year. Its revenue is down 31% over the previous year.

Overall this is not a very positive result for shareholders. And the impression is worse when you consider revenue is down year-on-year. These factors suggest that the business performance wouldn't really justify a high pay packet for the CEO. 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 NewOcean Energy Holdings Limited Been A Good Investment?

With a total shareholder return of -80% over three years, NewOcean Energy Holdings Limited shareholders would by and large be disappointed. This suggests it would be unwise for the company to pay the CEO too generously.

To Conclude...

NewOcean Energy Holdings pays its CEO a majority of compensation through a salary. Given that shareholders haven't seen any positive returns on their investment, not to mention the lack of earnings growth, this may suggest that few of them would be willing to award the CEO with a pay rise. At the upcoming AGM, the board will get the chance to explain the steps it plans to take to improve business performance.

CEO compensation is an important area to keep your eyes on, but we've also need to pay attention to other attributes of the company. In our study, we found 4 warning signs for NewOcean Energy Holdings you should be aware of, and 2 of them can't be ignored.

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. 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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