Key Insights

• Far East Hotels and Entertainment's Annual General Meeting to take place on 2nd of September
• Total pay for CEO Derek Chiu includes HK$706.9k salary
• Total compensation is 64% below industry average
• Far East Hotels and Entertainment's total shareholder return over the past three years was 300% while its EPS was down 76% over the past three years

Performance at Far East Hotels and Entertainment Limited (HKG:37) has been rather uninspiring recently and shareholders may be wondering how CEO Derek Chiu plans to fix this. At the next AGM coming up on 2nd of September, they can influence managerial decision making through voting on resolutions, including executive remuneration. It has been shown that setting appropriate executive remuneration incentivises the management to act in the interests of shareholders. In our opinion, CEO compensation does not look excessive and we discuss why.

How Does Total Compensation For Derek Chiu Compare With Other Companies In The Industry?

At the time of writing, our data shows that Far East Hotels and Entertainment Limited has a market capitalization of HK$391m, and reported total annual CEO compensation of HK$735k for the year to March 2024. Notably, that's an increase of 17% over the year before. Notably, the salary which is HK$706.9k, represents most of the total compensation being paid.

On comparing similar-sized companies in the Hong Kong Hospitality industry with market capitalizations below HK$1.6b, we found that the median total CEO compensation was HK$2.0m. This suggests that Derek Chiu is paid below the industry median. Moreover, Derek Chiu also holds HK$95m worth of Far East Hotels and Entertainment stock directly under their own name, which reveals to us that they have a significant personal stake in the company.

On an industry level, around 87% of total compensation represents salary and 13% is other remuneration. Far East Hotels and Entertainment pays a high salary, concentrating more on this aspect of compensation in comparison to non-salary pay. If salary dominates total compensation, it suggests that CEO compensation is leaning less towards the variable component, which is usually linked with performance.

Far East Hotels and Entertainment Limited's Growth

Over the last three years, Far East Hotels and Entertainment Limited has shrunk its earnings per share by 76% per year. It saw its revenue drop 20% over the last year.

The decline in EPS is a bit concerning. And the impression is worse when you consider revenue is down year-on-year. It's hard to argue the company is firing on all cylinders, so shareholders might be averse to high CEO remuneration. Although we don't have analyst forecasts, you might want to assess this data-rich visualization of earnings, revenue and cash flow.

Has Far East Hotels and Entertainment Limited Been A Good Investment?

Boasting a total shareholder return of 300% over three years, Far East Hotels and Entertainment 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.

To Conclude...

Derek receives almost all of their compensation through a salary. 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. These are are some concerns that shareholders may want to address the board when they revisit their investment thesis.

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 Far East Hotels and Entertainment that investors should look into moving forward.

Important note: Far East Hotels and Entertainment 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.

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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.