The Hour Glass

[WolfT]

me walks into "The Hour Glass" at 2pm or so.. 1st observation, not many customers.. probably less than 5

staff: how may i help u? (or something along the line)
me: blah blah blah blah...
staff: blah blah blah blah...

(ok so they cant adjust my watch for me. asked me to send it in to LVMH.)

me: oh do you have the ceramic sub? 116610LN?
staff: do you mean the new sub with date? or the new big sub no date?
me: sub ceramic with date.
staff: oh we're sold out.
me: how about the new sub no date 114060?
staff: oh we are sold out of that as well. whenever we get stock, it gets sold immediately.
me: ok thanks (walks out with a grin)

usually they will chk for u which outlet they have stock and reserve for u.
Some of them will even call people from sincere or cortina whom they knew to chk for me. Great service!

(not vested)

[Boon]

2 relevent questions: (1)What's the value of a proven, experienced and driven management team? and (2) What is the right and fair price to pay for their contonuous service and contribution to the business?

Put it in another way:

The proposed dividend for FY2012 is 6.0 cents.

What if the management is paid an additional bonus of 2.84 million, at the expense of the shareholders by reducing the proposed dividend from 6.0 cents to 5.0 cents.

Would this be a fairer alternative?

1) If yes, why?
2) If no, why?

(vested)

[dydx]

Well, we must not forget bonuses paid to executives are taxable at personal level, and the marginal personal income tax rates for high income earners (> $200k chargeable annual income) are invariably higher than the prevailing Singapore corporate income tax rate at 17%.

So as the largest shareholders of THG, the Tays and Chans would actually receive more, on an aftertax basis, if the company's profits are distributed out as dividends. We must not also forget that their salaries/bonuses are subject to approval by THG's Remuneration Committee, and the IDs forming the committee are not pushovers or idiots.

Sometimes, it is difficult to overpay a very good CEO or management team able to deliver solid business growth and profits continuously over a long period of time!

[CY09]

Would like to point out that while personal income tax may be high for high income earners. It is possible that income taxes are offset by tax deductions and other routes that their tax advisers could advice in

[Boon]

Well, we must not forget bonuses paid to executives are taxable at personal level, and the marginal personal income tax rates for high income earners (> $200k chargeable annual income) are invariably higher than the prevailing Singapore corporate income tax rate at 17%.

So as the largest shareholders of THG, the Tays and Chans would actually receive more, on an aftertax basis, if the company's profits are distributed out as dividends.

http://www.iras.gov.sg/irasHome/page04.aspx?id=1190

The top marginal personal income tax rate for (>320,000) is 20% flat.

Scenario 1: Additional 2.84 million from the PBT is paid to the Tays and Chans.

Personal income tax paid = 0.2 x 2.84 = 0.568 million
Cash in hands after tax to the Tays and Chans = 0.8 x 2.84 = 2.27 million

Scenario 2 :The 2.84 million from the PBT is paid out as dividend to shareholders net of corporate tax rate of 17%

Corporate tax paid = 0.17 x 2.84 = 0.483 million
PAT = 0.83 x 2.84 = 2.36 million , to be distributed to shareholders which work out to be 1.00 cents per share (outstanding number of share = 235 million)
Tays and Chans control 52.57% of the company.
Dividends received by Tays and Chans = 0.5257 x 2.36 = 1.24 million

So as the largest shareholders of THG, the Tays and Chans would actually receive LESS and not more, on an aftertax basis, if the same amount of company's PBT are distributed out as dividends.

Please correct me if I am wrong. Thanks.

[d.o.g.]

So as the largest shareholders of THG, the Tays and Chans would actually receive LESS and not more, on an aftertax basis, if the same amount of company's PBT are distributed out as dividends.

Bingo. From a controlling shareholder's point of view, he gets 100% of his salary and bonus, but only a pro-rata share of dividends. Partial ownership is effectively another tax, so it's more efficient to keep pay high and the dividend payout low.

[maniac]

We must not also forget that their salaries/bonuses are subject to approval by THG's Remuneration Committee, and the IDs forming the committee are not pushovers or idiots.

Hi,

Just want to point out that the Directors’ fees for Non-Executive Directors will be $283,514 for the financial year ended
31 March 2012. (2011: $203,000)

[shanrui_91]

perhaps we should ask more about the formula for determining the pay of Group Managing Director, Executive Director, Chairman and Vice-Chairman. Definitely not going to be an easy question to ask and even harder to get a satisfactory answer.

Is there a need to have 4 executives at the highest level to make decision? In all cases, this is likely to continue given their shareholding and that the company has been delivering excellent results

[Salty]

Agency cost of equity!
What can shareholder expect actually?
I would rather they get paid slightly more, than purposely misrun the company and take over at cheap

[Boon]

Let's put it this way: (Apology if anyone has misunderstood my questions)

In p78 under Note 30(b), it shows that total short-term employee benefits for all directors of THG in FY12 would amount to $7.8m

Scenario A: (current state: base scenario)

Pay 7.8 million as proposed to all directors.
Dividend has been proposed to be 6 cents. (If market is willing to price dividend payout at 5% yield, implied share price = 1.20)

Scenario B:

Pay 7.80 - 2.84 = 4.96 million to all directors.
Assume IDs pays unchanged.
Tays and Chans collectivley get 2.84 million LESS in pays (before tax).
Tays and Chans get 0.8 x 2.84 = 2.27 million LESS in pays (after tax).

The 2.84 million (PBT) deducted from the Tays and Chans is paid out as dividend to shareholders net of corporate tax rate of 17%

Corporate tax paid = 0.17 x 2.84 = 0.483 million
Leaving after tax amount = 0.83 x 2.84 = 2.36 million , to be distributed as dividend to shareholders which work out to be 1.00 cent per share (outstanding number of share = 235 million)
Tays and Chans control 52.57% of the company.
Tays and Chans get 0.5257 x 2.36 = 1.24 million MORE as dividend
After tax net effect to the Tays and Chans = -2.27 (loss in pay) + 1.24 (gain in dividend) = - 1.03 million (LESS)
Minority shareholders get 1.0 cent per share MORE in dividend.
Dividend = 7.0 cents (If market is willing to price dividend payout at 5% yield, implied share price = 1.40)

Scenario C:

Pay 7.80 + 2.84 = 10.64 million to all directors.
Cut dividend payout from 6.0 cent to 5.0 cents.
IDs pay unchanged.
Tays and Chans collectivley get 2.84 million MORE in pays (before tax).
Tays and Chans get 0.8 x 2.84 = 2.27 million MORE in pays (after tax).
Tays and Chans get 0.5257 x 2.36 = 1.24 million LESS as dividend
After tax net effect to the Tays and Chans = +2.27 (gain in pays) + 1.24 (loss in dividend) = + 1.03 million (MORE)
Minority shareholders get 1.0 cent per share LESS in dividend.
Dividend = 5.0 cents (If market is willing to price dividend payout at 5% yield, implied share price = 1.00)

Questions:
Which scenario is your FAIRER choice, and WHY?

Note: Please correct me if I am wrong. Thanks.