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CStone leads Hong Kong-listed biotech companies' CEO pay in 2018

CStone Pharmaceuticals CEO Jiang Ningjun received the highest compensation in 2018 among six Hong Kong-listed prerevenue biotech companies, according to data compiled by S&P Global Market Intelligence.

The Shanghai-based oncology drugmaker is one of eight biotech companies that listed in Hong Kong after the city eased listing rules in April 2018. Six of the eight early-stage companies released their 2018 annual reports, disclosing CEO compensation details.

The total adjusted compensation of each CEO in our list includes reported salaries, benefits, bonuses and share-based payments, but excludes pension contributions.

While all the companies are young, the total reported compensation — and hikes — of the CEOs are competitive and comparable even to the best-paid pharma executives in the U.S.

Total reported compensation of Jiang Ningjun, CStone Pharmaceuticals' CEO, for instance, was 141.25 million yuan in 2018.

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His pay is not only nearly 10 times higher than his total compensation in 2017, it is also comparable with the adjusted total compensation of $20.9 million received by Merck & Co. Inc. Chairman and CEO Kenneth Frazier in 2018.

Frazier's remuneration topped payments received by pharmaceutical companies' CEOs in 2018.

Chinese biotech companies tend to use remuneration paid to U.S. executives in the sector as a benchmark to decide on what they pay their own executives, said Singapore-based Alexander Krasavin, partner and chief commercial officer for human capital solutions for Asia Pacific and Middle East at consultancy Aon.

The highly competitive pay schemes for Hong Kong-listed biotech companies will serve as the guidepost for other Chinese companies planning to debut on the stock exchange in the city, he added.

"CEOs of precommercial biotech companies globally are compensated based on the future value of the company that they are expected to deliver through their leadership," Krasavin said.

Moderna Inc. CEO Stéphane Bancel, for instance, received $58.60 million, the highest compensation among newly listed biotech companies in the U.S. in 2018.

"Whether or not the executive's compensation is sustainable is determined by how confident the company's shareholders and board of directors are of the executive's ability to deliver that value," Krasavin said.

Paycheck bonanza

Overall, paychecks of all the CEOs on the Hong Kong list more than doubled in 2018. Innovent Biologics Inc. CEO Yu Dechao received the highest pay rise in 2018.

His total adjusted reported compensation soared about 15 times higher to 107.08 million yuan, while Hua Medicine (Shanghai) Ltd. CEO Chen Li, who received 11.71 million in 2018, saw the smallest compensation hike of 194%.

By absolute value, Shanghai Junshi Biosciences Co. Ltd. CEO Li Ning's compensation is the lowest at 4 million yuan. Li replaced Xiong Jun as CEO in January 2018.

The huge pay variance across the six companies is partly because of big differences in share-based payments, which account for a huge chunk of total compensation.

CStone's Jiang, for instance, received a share-based payment of 134.39 million yuan — the highest among all CEOs on the list — while Hua Medicines' Li did not receive any such payment.

"This [share-based payments] more closely ties total compensation to the performance of the company, which in theory is a good thing for both shareholders and CEOs," Robert Amos, Hong Kong head of executive compensation at consulting firm Mercer, said in an email. However, he also pointed out that such payments could make total remuneration more volatile as sharp share price moves could have a material impact.

Of the eight stocks listed since April 2018, only Shanghai Junshi Biosciences and Innovent Biologics shares are trading above their issue price as of Aug. 7, according to data compiled by Market Intelligence.

Amos said he expects to see more consistency in overall pay structure over time with more long-term incentives that better capture firm performance into CEO compensation.

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As of Aug. 27, US$1 was equivalent to 7.16 Chinese yuan.