Troubling Pay Disparity for Hong Kong Board Members Sparks Governance Concerns

Hong Kong - Ekhbary News Agency

Troubling Pay Disparity for Hong Kong Board Members Sparks Governance Concerns

A significant disparity in compensation for Independent Non-Executive Directors (INEDs) at Hong Kong-listed companies has come under scrutiny, with a recent survey revealing an astonishing range from US$850 to US$1.67 million annually. This nearly 2,000-fold difference between the highest and lowest paid INEDs has drawn considerable attention, prompting concerns about potential disconnects between director remuneration and their crucial responsibilities in corporate governance.

The survey, conducted by the Hong Kong Independent Non-Executive Director Association (HKINEDA) and based on the 2024 annual reports of over 2,600 listed companies, found that the lowest-paid INED received just 6,000 yuan (approximately US$867.94). In stark contrast, the highest earner took home US$1.67 million. While some variation in director fees is expected, depending on the specific role, experience, and demands, the sheer magnitude of the gap in Hong Kong is reportedly much wider than in other major international financial markets.

Experts and lawmakers have voiced concerns that such a wide disparity could signal underlying issues within the market. Robert Lee Wai-wang, a lawmaker representing the financial services sector, commented, "Too wide of a disparity may indicate quality issues with attracting talent in the case of low fees, or a lack of independence if fees are too high." He emphasized the importance of finding a proper balance to ensure companies can attract suitable and qualified individuals to serve on their boards.

The survey identified the company with the highest-paid director as United Company Rusal, a major Russian aluminum producer. Conversely, the company with the lowest-paid director was Haina Intelligent Equipment International, a manufacturer of automated machinery for hygiene products based in China's Fujian province.

Further highlighting the extreme range, the average pay for the top 10 highest earners in the HKINEDA survey was HK$4.34 million (approximately US$555,333). This figure is an astonishing 202 times greater than the average remuneration for the bottom 10 earners, which stood at HK$21,466. For comparative context, a report by recruitment firm Spencer Stuart indicated that annual retainers for directors of U.S. S&P 500 companies last year varied by a factor of 12, ranging from US$28,000 to US$360,000.

The implications of this significant pay gap extend to the core functions of corporate governance. On the lower end, meager compensation packages might deter highly qualified and experienced professionals from taking on INED roles. This could lead to a pool of directors who lack the necessary expertise or time commitment to effectively challenge management, oversee risk, and ensure robust compliance. Such directors might hold positions across numerous companies simply to supplement their income, potentially diluting their focus and effectiveness on each board.

Conversely, exceptionally high remuneration for a select few INEDs raises critical questions about their independence. When compensation reaches such substantial levels, there's a potential risk of conflicts of interest. Directors might feel pressured to align with management or dominant shareholders to retain these lucrative positions, potentially compromising their ability to act as objective overseers and advocates for the broader stakeholder interests. This undermines the fundamental purpose of having independent directors, who are meant to provide unbiased scrutiny and guidance.

Effective corporate governance is paramount for investor confidence and the stability of financial markets. The pronounced pay disparity in Hong Kong's listed companies necessitates a closer examination by regulators and market bodies. Potential measures could include establishing clearer guidelines for director compensation, enhancing the selection and vetting processes for INEDs, and promoting greater transparency around board remuneration. The goal is to ensure that compensation is aligned with the responsibilities, expertise, and commitment required for effective board service, fostering a culture of strong corporate ethics and accountability.

The HKINEDA is actively analyzing these findings and is expected to propose recommendations to improve governance practices among Hong Kong-listed entities. Addressing this pay disparity is crucial for maintaining Hong Kong's reputation as a leading international financial hub and for ensuring that its corporate boards function as effective guardians of company value and stakeholder rights.

Ekhbary News Agency