This Is Why Henan Jinma Energy Company Limited's (HKG:6885) CEO Compensation Looks Appropriate

Henan Jinma Energy Company Limited (HKG:6885) has exhibited strong share price growth in the past few years. However, its earnings growth has not kept up, suggesting that there may be something amiss. These concerns will be at the front of shareholders' minds as they go into the AGM coming up on 25 May 2021. One way that shareholders can influence managerial decisions is through voting on CEO and executive remuneration packages, which studies show could impact company performance. In our analysis below, we show why shareholders may consider holding off a raise for the CEO's compensation until company performance improves.

See our latest analysis for Henan Jinma Energy

Comparing Henan Jinma Energy Company Limited's CEO Compensation With the industry

Our data indicates that Henan Jinma Energy Company Limited has a market capitalization of HK$2.1b, and total annual CEO compensation was reported as CN¥865k for the year to December 2020. We note that's a decrease of 11% compared to last year. In particular, the salary of CN¥541.0k, 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 ranging from HK$777m to HK$3.1b, the reported median CEO total compensation was CN¥1.1m. From this we gather that Mingzhong Wang is paid around the median for CEOs in the industry.

Component	2020	2019	Proportion (2020)
Salary	CN¥541k	CN¥520k	63%
Other	CN¥324k	CN¥451k	37%
Total Compensation	CN¥865k	CN¥971k	100%

Speaking on an industry level, nearly 84% of total compensation represents salary, while the remainder of 16% is other remuneration. It's interesting to note that Henan Jinma Energy allocates a smaller portion of compensation to salary in comparison to the broader industry. If salary dominates total compensation, it suggests that CEO compensation is leaning less towards the variable component, which is usually linked with performance.

A Look at Henan Jinma Energy Company Limited's Growth Numbers

Over the last three years, Henan Jinma Energy Company Limited has shrunk its earnings per share by 9.8% per year. Its revenue is down 5.7% over the previous year.

The decline in EPS is a bit concerning. This is compounded by the fact revenue is actually down on last year. So given this relatively weak performance, shareholders would probably not want to see high compensation 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 Henan Jinma Energy Company Limited Been A Good Investment?

Boasting a total shareholder return of 36% over three years, Henan Jinma Energy Company Limited has done well by shareholders. So they may not be at all concerned if the CEO were to be paid more than is normal for companies around the same size.

In Summary...

Despite the strong returns on shareholders' investments, the fact that earnings have failed to grow makes us skeptical about the stock keeping up its current momentum. The upcoming AGM will provide shareholders the opportunity to revisit the company’s remuneration policies and evaluate if the board’s judgement and decision-making is aligned with that of the company’s shareholders.

While it is important to pay attention to CEO remuneration, investors should also consider other elements of the business. We did our research and spotted 2 warning signs for Henan Jinma Energy that investors should look into moving forward.

Arguably, business quality is much more important than CEO compensation levels. So check out this free list of interesting companies that have HIGH return on equity and low debt.

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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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