Should Shareholders Reconsider ELL Environmental Holdings Limited's (HKG:1395) CEO Compensation Package?

Key Insights

• ELL Environmental Holdings will host its Annual General Meeting on 3rd of June
• CEO Kwan Chan's total compensation includes salary of HK$460.0k
• Total compensation is similar to the industry average
• ELL Environmental Holdings' EPS declined by 55% over the past three years while total shareholder loss over the past three years was 5.1%

The results at ELL Environmental Holdings Limited (HKG:1395) have been quite disappointing recently and CEO Kwan Chan bears some responsibility for this. Shareholders can take the chance to hold the board and management accountable for the unsatisfactory performance at the next AGM on 3rd of June. This will be also be a chance where they can challenge the board on company direction and vote on resolutions such as executive remuneration. We present the case why we think CEO compensation is out of sync with company performance.

See our latest analysis for ELL Environmental Holdings

How Does Total Compensation For Kwan Chan Compare With Other Companies In The Industry?

Our data indicates that ELL Environmental Holdings Limited has a market capitalization of HK$131m, and total annual CEO compensation was reported as HK$590k for the year to December 2023. This means that the compensation hasn't changed much from last year. We note that the salary portion, which stands at HK$460.0k constitutes the majority of total compensation received by the CEO.

On comparing similar-sized companies in the Hong Kong Water Utilities industry with market capitalizations below HK$1.6b, we found that the median total CEO compensation was HK$611k. So it looks like ELL Environmental Holdings compensates Kwan Chan in line with the median for the industry. Furthermore, Kwan Chan directly owns HK$2.2m worth of shares in the company, implying that they are deeply invested in the company's success.

Component	2023	2022	Proportion (2023)
Salary	HK$460k	HK$471k	78%
Other	HK$130k	HK$129k	22%
Total Compensation	HK$590k	HK$600k	100%

On an industry level, roughly 86% of total compensation represents salary and 14% is other remuneration. Although there is a difference in how total compensation is set, ELL Environmental Holdings more or less reflects the market in terms of setting the salary. If salary dominates total compensation, it suggests that CEO compensation is leaning less towards the variable component, which is usually linked with performance.

ELL Environmental Holdings Limited's Growth

Over the last three years, ELL Environmental Holdings Limited has shrunk its earnings per share by 55% per year. In the last year, its revenue is down 44%.

Few shareholders would be pleased to read that EPS have declined. 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. Although we don't have analyst forecasts, you might want to assess this data-rich visualization of earnings, revenue and cash flow.

Has ELL Environmental Holdings Limited Been A Good Investment?

Given the total shareholder loss of 5.1% over three years, many shareholders in ELL Environmental Holdings Limited are probably rather dissatisfied, to say the least. So shareholders would probably want the company to be less generous with CEO compensation.

In Summary...

Along with the business performing poorly, shareholders have suffered with poor share price returns on their investments, suggesting that there's little to no chance of them being in favor of a CEO pay raise. At the upcoming AGM, they can question the management's plans and strategies to turn performance around and reassess their investment thesis in regards to the company.

It is always advisable to analyse CEO pay, along with performing a thorough analysis of the company's key performance areas. We identified 3 warning signs for ELL Environmental Holdings (2 are significant!) that you should be aware of before investing here.

Important note: ELL Environmental Holdings is an exciting stock, but we understand investors may be looking for an unencumbered balance sheet and blockbuster returns. You might find something better in this list of interesting companies with high ROE and low debt.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.