Directors paid lavishly despite slim pickings for minorities
September 28, 2001 1:49am
As Hong Kong-listed firms flood the market with their reports, directors seem to have little compunction about richly rewarding themselves while reporting awful results.
Huge pay-outs for directors of poorly performing companies have prompted renewed calls for improved checks and balances for corporate governance.
Ricky Tam Siu-hing, chairman of the Hong Kong Institute of Investors (HKII), argues that the problem of Hong Kong directors over-paying themselves without due regard for minority shareholders' interests is more serious than in many overseas markets.
It is because most Hong Kong companies are controlled by a single family or party who dominate the board of directors, Mr Tam said.
Without a strong checking mechanism from other major shareholders, directors can easily raise their pay to any level they want.
The HKII was formed two years ago to enhance retail
investors' knowledge of financial markets.
Huge pay-outs to directors contrast with many firms' dismal profit performances and a poor business outlook in a rapidly weakening economy.
Upmarket retailer Dickson Concepts chairman Dickson Poon told last month's annual shareholders' meeting the retail market was the worst in the recent 20 years and pledged to tighten cost control.
However, the firm's annual report revealed a 52 per cent surge in its directors' remuneration, despite Dickson Concepts reporting a fall in profit of nearly 63 per cent.
After losing HK$6.9 billion, Pacific Century CyberWorks last year raised the pay of 16 directors almost 55 times to HK$768 million, from HK$14 million for 19 directors the previous year.
In isolated cases, minority shareholders have opposed remuneration packages considered unreasonable.
David Webb, a market commentator and campaigner for minority rights, voted against a resolution at Sunday Communications' annual meeting in May for a 3.97 times increase in the loss-making firm's directors' pay.
Mr Tam said shareholders were frustrated in opposing large pay-outs to directors due to a provision in the listing rules that allowed controlling shareholders to vote on remuneration despite having representatives on the board.
In the case of Sunday Communications, substantial shareholders Distacom and USI Holdings, which have representatives on the company's board and control a 57.7 per cent stake, are presumed to have voted in favour of the package.
Commentators argue for a number of measures to strengthen the rights of shareholders.
David Sun Tak-kei, vice-president of Hong Kong Society of Accountants, said a possible solution might be to require listed firms to establish independent remuneration committees.
Such committees would include independent member(s), charged with scrutinising proposals for salaries proposals to be put before shareholders.
The market response to the idea is lukewarm, though we have been suggesting it since the mid-90s, Mr Sun said.
But some analysts do not think that is the best solution. For example, Mr Webb has pointed out that even if such a committee did exist at Sunday, it would still allow the remuneration proposal to be put on the shareholder meeting's agenda.
Some market-watchers think a more effective solution could be reached through amendments to the current rules and regulations.
They included Mr Webb, who proposed that any increase in
directors' remuneration exceeding 20 per cent should be subject to minority shareholders' approval.
However, Mr Sun was concerned such an amendment could make a handful of small shareholders capable of voting down salary proposals that were sensible.
Standing Committee on Company Law Reform chairman Justice Rogers said in July that directors' remuneration was among the subjects the committee would tackle in the future.
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