Remuneration comparison (Supergroup, YHS & Thai Beverage)

We all know that Warren Buffet’s salary is USD$100,000.00.

One way to assess the management team is through the compensation packages they receive. A general rule is to compare net profits to salary.

So let’s take a peek at these 3  similar companies top management remuneration packages base on their 2013 Annual Reports.

Supergroup:

For YR2013, it earns a net profit of SGD$103,364,000.00.

The key man here is Mr David Teo Kee Bock (Chairman and Managing Director).

His Remuneration for year 2013 is SGD $5,469,000.00 ($5.469 mil). Interestingly, most of it came from profit sharing. For a small company generating approx. $103 mil in net profit in year 2013, this remuneration is quite high.

Let’s compare this to another similar company operating within the same industry eg. Yeo Hiap Seng.

Pre-tax profit for YHS for year 2013 is SGD$93,870,000.00. (near to that of Supergroup’s)

The key man here is Mr. Tjong Yik Min, 61 (Group Chief Executive Officer). His remuneration for year 2013 is SGD $2,850,524.00. (slightly more than half of Supergroup’s Mr David Teo remuneration).

 

Lastly, let’s look at Thai Beverage (similar company operating within the same industry).

Net profit for year 2013 is 19,002 mil baht (approx SGD $773.91miil). More than 7 times that of Supergroup’s.

The key man here is Mr. Thapana (President & CEO).

His Remuneration for year 2013 is less than SGD $1,500,000.00. (Supergroup’s Mr David Teo remuneration is more than 3.5 times his remuneration, although Supergroup’s net profit is 13% that of Thai Beverage’s).

 

From first glance above, Supergroup may appear to be overpaying. That may be true, but we do want leaders to be rewarded for out-standing long term performance. This should be done through profit sharing bonus eg. management rewarded more when the company makes more money and vice versa. Among the 3 men featured above, the profit sharing component in Supergroup’s  Mr David Teo occupies the biggest percentage in relation to the total gross remuneration (73%). Fixed salary is only a low 13% (approx. $710K). In fact, in comparison to YHS and Thai Beverage, the fixed salary component in Supergroup’s management team is relatively low. YHS’s Mr Tjong fixed salary (looking at the percentage) would be approx. $1.3 mil, while Thai Beverage’s Mr. Thapana fixed salary would be approx. $765K/$637 (if his total remuneration is $1.5mil or $1.25mil respectively). So in bad or good times Mr Tjong would be assured of a higher fixed salary in comparison to Mr David Teo or Mr Thapana.

Instead of focusing on the gross remuneration, perhaps the focus should be on the percentage of variable component of the cost structure. After all, it would be better to have a higher variable cost structure than fixed, as it is easier to make adjustments during tough times.

Steve Job’s salary was $1 and he became a billionaire as consequence of the shares he owned. 

We want to make money only when our partners do and in exactly the same proportion. Moreover, when I do something dumb, I want you to be able to derive some solace from the fact that my financial suffering is proportional to yours. Warren Buffett