Unjustified pay
Saturday, January 5, 2002
Hong Kong never needed official exhortation that to get rich is glorious. The desire for wealth is pre-programmed in this city of entrepreneurs and traders. This has often seen the law stretched to its limit and well-connected insiders walk away with the greatest spoils.
That is what drives Hong Kong. But our survey of the remuneration packages of directors of Hang Seng-listed firms reveals a pattern of top management's pay that often bears no relation to the performance of their firms. Bosses, it seems, have an undiminished appetite for riches. Unfortunately, many are losing money for their shareholders hand over fist.
The survey is dominated by the $768 million paid to Pacific Century CyberWorks directors in the year ending 2000, representing an increase of 5,151 per cent from the previous year. Much of the huge rise stemmed from options on CyberWorks' shares, the price of which soared before the dotcom bubble burst and the firm suffered record losses. It is unlikely to be repeated. A more general pattern of high pay is seen in SAR property firms, whose profits have plunged since 1997 but whose directors' pay has risen sharply. This is partly explained by increased hiring of professional managers rather than shareholding family members. But in many cases, the payout for the directors looks unjustified.
Hong Kong has been slow to implement corporate governance reforms such as remuneration committees staffed by independent directors. A deeper problem is a lack of genuinely autonomous directors able to represent minority shareholders' interests. Outside regulators should not oversee directors' pay, but public companies should be required to explain to shareholders the reasoning behind the remuneration.
At a time of rising unemployment and falling wages (in some sectors) such findings are perverse. In the worst cases it smacks of a declining business elite that only wants to grab high personal returns. Unchecked, it promises to pit workers against management. It also offers good reason for market deregulation that encourages new entrants to key SAR industries who want to do more than feather their own nest.
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Published in the South China Morning Post. Copyright © 2002. All rights reserved.
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