Swire, China Mobile and China Life rank top for executive performance

Swire Pacific, China Mobile and China Life pay their top executives the least amount of money relative to their earnings per share (EPS), while Manulife Financial Corp. is the most generous when it comes to rewarding their executives relative to the income they made per share, according to the newly-released M&E BDO Asiamoney Stars Index. 

The index, which officially launched in November, includes 18 of Hong Kong and China´s best managed companies, and uniquely quantifies good management using such indicators, in an effort to demonstrate that well-managed companies outperform the market as a whole.

According to the index, shareholders of Swire pay company executives HKD29,576 (US$3,814.96) for one Hong Kong dollar cent of EPS, while at the other end Manulife executives charged their owners HKD29 million per cent of EPS. Companies with larger government ownership generally did better in the new league table than completely private sector companies due to caps on executive pay.

The ranking by Management & Excellence (M&E) and BDO Financial in Hong Kong was based on the ratio of 2011 consolidated executive remuneration divided by EPS, to create the Executive Cost Ratio. This is used as one of hundreds of criteria used to screen and weigh companies in the M&E BDO Asiamoney Hong Kong Stars Index (HK Stars Index).

The index has outperformed the Hang Seng index by 9%-11% on a monthly basis over the past six months.

In total, the 18 companies covered in M&E BDO's latest research spent HKD29.09 million for a total of 18 cents of EPS, with Manulife accounting for 72% of this figure.

“The relationship between executive compensation and EPS is perhaps at the heart of shareholder control over executive performance,” said Patrick Rozario, director at BDO Financial, which is responsible for overseeing the newly-launched management rating system.

“While executive remuneration numbers are published by all companies in their annual reports, few investors have sought to compare them to a common financial standard such as EPS,” added William Cox, CEO of M&E—the company that developed the method in Brazil and Europe.

While only three companies—Shangr-La Asia, Lenovo and Manulife—payed their executive team over HKD1 million per 1 cent of EPS, this was sufficient to drive the average Executive Cost Ratio among all 18 companies to HKD1.61 million. The research considers all fixed and variable compensation, except stock options, which could skew the results.

The range between the most cost effective and most expensive companies is considerable. However, excluding the bottom three firms, the standard deviation in the results is only HKD126,806.

If all 18 companies are included, this number jumps to over HKD4 million. With Swire reporting roughly half of the EPS level for 2012 than it did in 2011, negative operating results and higher interest expenses due to increased debt (June 2012), its Executive Cost Ratio is likely to deteriorate unless compensation is adjusted downwards.