Key Insights

• SMC Electric's Annual General Meeting to take place on 14th of June
• Salary of HK$1.93m is part of CEO Chun Wah Leung's total remuneration
• The total compensation is similar to the average for the industry
• SMC Electric's three-year loss to shareholders was 2.2% while its EPS was down 19% over the past three years

The results at SMC Electric Limited (HKG:2381) have been quite disappointing recently and CEO Chun Wah Leung bears some responsibility for this. At the upcoming AGM on 14th of June, shareholders can hear from the board including their plans for turning around performance. They will also get a chance to influence managerial decision-making through voting on resolutions such as executive remuneration, which may impact firm value in the future. From our analysis, we think CEO compensation may need a review in light of the recent performance.

How Does Total Compensation For Chun Wah Leung Compare With Other Companies In The Industry?

Our data indicates that SMC Electric Limited has a market capitalization of HK$170m, and total annual CEO compensation was reported as HK$2.2m for the year to December 2023. That is, the compensation was roughly the same as last year. We note that the salary portion, which stands at HK$1.93m constitutes the majority of total compensation received by the CEO.

On comparing similar-sized companies in the Hong Kong Consumer Durables industry with market capitalizations below HK$1.6b, we found that the median total CEO compensation was HK$2.3m. So it looks like SMC Electric compensates Chun Wah Leung in line with the median for the industry.

Speaking on an industry level, nearly 89% of total compensation represents salary, while the remainder of 11% is other remuneration. SMC Electric is largely mirroring the industry average when it comes to the share a salary enjoys in overall compensation. If salary dominates total compensation, it suggests that CEO compensation is leaning less towards the variable component, which is usually linked with performance.

SMC Electric Limited's Growth

Over the last three years, SMC Electric Limited has shrunk its earnings per share by 19% per year. It saw its revenue drop 8.5% over the last year.

The decline in EPS is a bit concerning. This is compounded by the fact revenue is actually down on last 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 SMC Electric Limited Been A Good Investment?

Since shareholders would have lost about 2.2% over three years, some SMC Electric Limited investors would surely be feeling negative emotions. Therefore, it might be upsetting for shareholders if the CEO were paid generously.

To Conclude...

Not only have shareholders not seen a favorable return on their investment, but the business hasn't performed well either. Few shareholders would be willing to award the CEO with a pay raise. At the upcoming AGM, the board will get the chance to explain the steps it plans to take to improve business performance.

It is always advisable to analyse CEO pay, along with performing a thorough analysis of the company's key performance areas. We did our research and identified 3 warning signs (and 1 which is a bit unpleasant) in SMC Electric we think you should know about.

Important note: SMC Electric 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.