Property firm CapitaLand is heading today to its annual general meeting in the inept situation of justifying the bonus amounting to $20.52 million that was paid to CEO Liew Mun Leong in 2007. The big bonus, which is believed as the biggest bonus ever paid to a CEO in one year, has instantly turned as the talk of the town.
The bonus came to hand just when the firm released its summary report for the year 2008 on 24 March. CapitaLand warranted the said amount by indicating to the record profit of the group amounting to $2.76 billion that year.
It was also unveiled in the firm’s summary report that Mr. Liew received $6.36 million when CapitaLand registered a net income of about $1.01 billion in 2006. If the bonuses from 2006 to 2008 are sum up together, Mr. Liew’s whole bonuses arrived to nearly $30 million.
CapitaLand stated that it applies the economic value added (EVA) indicator in order to compute the correct amount of performance-based bonuses for its great management. Thus, the 2007 bonus of Mr. Liew was based on the EVA of $2.3 billion.
The revaluation gains were also included in the EVA figure for 2007, in which the company made out gains of some $1.1 billion from its investment portfolio. If taken out, the fundamental gains will be lower. CapitaLand also cleared up that it has discounted profits from EVA when calculating the bonus.
However, a question still lies ahead. If revaluation gains were truly discounted from EVA, the resulted amount for the calculating bonuses should be much lower. Then, why is it that the 2007 bonus of Mr. Liew is three times more than what he got in 2006?
Performance bonuses really have a position in retaining and attracting talent. The company can prove it particularly the division handled by the management, including the chief executive, which transformed CapitaLand from a debt-leaden firm into the largest developer in Southeast Asia. Yet, this does not intend that such big payouts should not undergo precise interrogation. Investors must ask if such big amount is reasonable and if the bonus was exactly attained.
Another thing that stockholders need to clarify is about the plans of the company for its cash hoard. CapitaLand just completed a $1.84 billion rights issue recently, taking its total fund to about $6 billion.
“Upon the completion of its rights issue and its subscription for CapitaMall Trust’s rights shares, CapitaLand now has a cash hoard of about $5.698 billion and its net gearing has fallen from 0.46 times to 0.3 times”, noted Foo Sze Ming, an analyst from OCBC Investment Research. “Focus will now be on the deployment of the funds raised, which could be a potential catalyst to the re-rating of CapitaLand’s shares”.