With a median CEO total reward value of US$2.16M (HK$16.78M), and despite globally having lost some of its gloss in recent years, the finance sector in Hong Kong still pays CEOs higher than other business sectors.
This is one of the findings from a study of 233 listed companies in Hong Kong, including 112 both listed and incorporated in Hong Kong, by Global Consulting firm, Hay Group.
"This is a reflection of the combined effects of size of finance sector companies in Hong Kong and executive salaries being higher in the sector generally. Almost one third of finance sector companies listed and incorporated in Hong Kong have relatively large market capitalisation, exceeding HK$140 billion. This is the highest proportion of large companies in any sector," says Thomas Higgins, General Manager, Hay Group Hong Kong.
However, with a median amount of 1.1% of company net profit being paid to the top job, CEOs in the communications sector proportionally get the largest share of profit.
"Changes in total CEO remuneration value is not always obviously linked to performance. Results are mixed when we examine the relationship between company profit increases and CEO total remuneration increases," says Higgins.
For 64% of companies there is a correlation between changes in net profit and change in total value of CEO remuneration – bigger percentage increase in profit correlated with bigger increase in take home pay and vice versa. However, for the other 36% there is no correlation with some CEOs receiving significant increase in total reward value despite lower year-on-year performance in terms of profit increase. A smaller percentage received lower total salary despite delivering significant profit increases.
Particularly since the global financial crisis, shareholders and regulators want to see clear links between organisation performance and executive reward. To accomplish this effectively companies need to achieve a balance between fixed cash, short and long-term incentive components and understand how these components interact to provide reward linked to sustainable growth and shareholder return.
When looking at Hong Kong incorporated companies only, 82% paid a short-term annual incentive to CEOs in 2012 and 84% have at least one long-term incentive (LTI) plan. However, only 18% of these companies actually used their existing LTI plans to reward CEOs with a long-term incentive allocation in 2012. A majority of companies with LTI plans do not reward their CEOs with annual allocations – choosing instead to use LTI on an occasional basis only. The share option plan is, by far, the most common long-term incentive mechanism in use.
For those companies that do use a long-term incentive component as part of the CEO total remuneration mix, the value delivered via fixed cash, short-term incentive and long-term incentive is approximately the same – one third fixed, one third short-term annual incentive and one third long term incentive.
Hong Kong’s situation is somewhat unique as a high percentage of companies listed here are incorporated in Mainland China. Salary patterns for CEOs in these mainland companies do not follow the pattern seen in companies incorporated in Hong Kong or in other global players.