All honour and public service, plus the cash to go with them

HKEx has given its non-executive directors a hefty pay increase despite rising costs and the poor performance of the company's shares

PUBLISHED : Saturday, 08 March, 2014, 12:34am
UPDATED : Tuesday, 28 April, 2015, 11:23am

Who says taking up government appointments is all about honour and public service. For the directors of the Hong Kong Exchanges and Clearing, it is more than that.

Take its non-executive chairman Chow Chung-kong for example. He is to see his basic director's fee raised by two-thirds to HK$1.5 million this year, according to the company's new remuneration plan.

That makes Chow the highest-paid non-executive government appointee, followed by Raymond Chien Kuo-fung, who earns HK$1.2 million as the chairman of another listed company, MTR Corp.

Together with the 50 per cent rise in fees for being the chairman of various committees of the HKEx and its subsidiaries, Chow will get HK$2.6 million this year.

In the pay rise plan, 11 other non-executive board members will get a 16.6 per cent fee jump to HK$700,000. Their average pay will rise to about HK$1 million if other fees are included.

Chow and four directors in the remuneration committee approved their own pay rise.

The committee noted that the adjustment was based on the recommendation of its consultant McLagan, which "has done a benchmarking exercise covering listed exchanges, banks, FTSE100 companies and HSI companies".

There are no details on the formula and comparison employed by McLagan.

The Intercontinental Exchange Group (ICE), which runs 23 regulated bourses including the New York Stock Exchange and the Euronext, paid its non-executive directors more than HK$2.4 million in 2012.

The average pay of HKEx non-executive directors was HK$830,000 last year.

However, according to ICE's detailed remuneration disclosure, more than 60 per cent of the directors' pay was related to stock performance. Besides, they run a business that enjoys no statutory monopoly like HKEx.

None of the ICE directors are government appointees while half of the HKEx board are.

The remuneration committee also said it had "to ensure the attraction and retention of high calibre and experienced individuals to oversee the HKEx's business and development".

Most of the HKEx's non-employee directors are getting between HK$200,000 and HK$350,000 in non-executive directorships elsewhere. As for Chow, he was paid HK$1.75 million by AIA in 2012.

Apparently, the majority needs a fee premium other than the status and influence to serve one of the world's largest exchanges.

Whatever the explanation, the directors have a tough case convincing shareholders that they deserve the pay increase.

In the past four years, HKEx shareholders suffered a 16.2 per cent loss in their investment while the Hang Seng Index gained 5.12 per cent.

That compares to rises of 2.3 and 1.3 times in the fees for the chairman and board members, respectively.

Behind the HKEx's poor performance is a 9.6 per cent drop in earnings per share, a rise in gearing and a significant growth in operating and staff costs.

Last year, HKEx made a net profit of HK$4.55 billion.

One explanation of the lower profit and rising costs is the takeover of London Metal Exchange which, the management says, is to bring a new engine of growth.

Yet, a look at its numbers before the acquisition will tell that its cost has been running wild way before that.

In the three years to 2012, its staff size had increased by more than 20 per cent to 1,019 after having remained stable at about 800 for years.

Its staff bill rose 48.7 per cent while growth in per capita staff cost was 21 per cent, including the more than doubling of pay for chief executive Charles Li Xiaojia.

Under Li's leadership, HKEx has been pushing itself into an all-rounded international marketplace.

While the push is expected to bear fruit in the future, what have the non-employee directors done to ensure it is at a reasonable cost to justify their pay rise?