The Executive Remuneration Review: Hong Kong


Hong Kong is one of the world's leading financial centres, and for decades has been a launching ground for businesses entering the Chinese market. As Hong Kong's economy has moved from a manufacturing-based to a service-based economy, remuneration levels have increased and pay structures have become more sophisticated. Packages often include base salary, bonuses and equity compensation. There are tax incentives for certain housing benefits, which often feature in executive compensation packages.

Following the global financial crisis, the Hong Kong Monetary Authority (HKMA) issued requirements concerning executive remuneration that followed similar conditions imposed in the United States, the United Kingdom and some countries in Europe. These requirements apply only to certain regulated financial institutions.

Hong Kong introduced minimum wage legislation in 2011. Payment of wages (including the time, manner and place of payment) is highly regulated, and record-keeping requirements can affect even highly paid executives. Companies are generally free to structure compensation packages for their executives by mutual agreement, but must operate within the statutory regime. Bonuses are highly regulated in Hong Kong, and many are unintentionally caught by legislation meant to cover 13th-month bonuses.

As Hong Kong becomes a more regulated jurisdiction for employers in general, there are likely to be additional restrictions on the way in which compensation can be structured.


i Income tax for employees

Hong Kong salaries tax is chargeable on employment income that arises in or is derived from Hong Kong. In determining whether income arises in Hong Kong, the location of the employment must be examined. The most important factors are whether the employment contract was negotiated and executed in Hong Kong, whether the employer is resident in Hong Kong and whether the remuneration is paid to the employee in Hong Kong.

If the employment is located in Hong Kong, the income from such employment will be chargeable to salaries tax, although an exemption is available if an employee renders no services in Hong Kong during this employment, or if the employee is physically present in Hong Kong for no more than 60 days in total in the year of assessment; however, even for employment that is not located in Hong Kong, if the employee is physically present in Hong Kong for more than 60 days and renders any services during that period, the income arising from the services rendered in Hong Kong will still be subject to salaries tax, albeit on a day-in-day-out basis. The salaries tax charge therefore applies to all employees, regardless of their nationality or residency. Salaries tax is charged at progressive rates, with the maximum rate being 17 per cent, but the total tax payable is capped at a standard rate of 15 per cent of the net assessable income.

Share options

Salaries tax will be charged upon the exercise of share options. The tax is levied on the gain realised by the exercise of the option, and this gain is calculated as the difference between the fair market value of the shares at the time of exercise, and the consideration paid for the grant of the shares.

Restricted stock

If there is no vesting period for restricted stock, salaries tax is charged on the fair market value of the shares at the time of grant. Discounts may be made in determining their fair market value depending on the restrictions applicable. Any distributions arising from the shares during the vesting period will not be taxable, as they are investment income. If a vesting period applies, salaries tax is charged on the fair market value at the time of vesting. Distributions that arise from the shares during the vesting period will also be taxable as employment income.

Restricted stock units

The legal position on restricted stock units (RSUs) is uncertain, but where they are settled completely in cash, they are most likely regarded as phantom share plans, and no salaries tax will be charged at the time the shares are allocated if no value is passed on to the employee. Salaries tax will be charged when the cash is paid. If RSUs are completely settled using shares, they would most likely be regarded as stock awards, and salaries tax would be charged when the shares vest in the employee. If an RSU is to be settled with a mixture of cash and shares, the tax treatment would depend on the particular terms of the RSU.

ii Social taxes for employees

In Hong Kong, employers and employees are each required by law to participate in a mandatory provident fund (MPF) scheme and to each contribute an amount equivalent to 5 per cent of the employee's relevant income (exclusive of severance or long-service payments paid under the Employment Ordinance) to the scheme. The employee's relevant income is currently capped at a maximum of HK$30,000 per month for the purposes of calculating the contribution. Accordingly, the maximum mandatory contribution amount required by both employer and employee is HK$1,500 per month.

The requirement to make contributions will apply in relation to all Hong Kong employment, regardless of the nationality or the residence of an employee. An executive director receiving a salary under a contract of employment, for example, will be required to join an MPF scheme; however, a director who receives directors' fees by virtue of being an office holder is not an employee and therefore not required to participate in an MPF scheme. There are, however, some limited exceptions for employees who enter Hong Kong on an employment visa.

Alternatively, an employer may also operate an Occupational Retirement Schemes Ordinance-exempted scheme instead of participating in an MPF scheme. The contributions for such a scheme will be governed by the relevant Occupational Retirement Schemes Ordinance-exempted scheme's governing rules.

Remuneration in the form of share options and other compensation that is not expressed in monetary form is excluded from the employee's income for the purposes of making MPF contributions.

iii Tax deductibility for employers

Employee remuneration is generally deductible by the employer for the purposes of profits tax, including regular contributions to an MPF scheme (up to a limit of 15 per cent of the total remuneration); however, only remuneration that can be shown to be an expense incurred in the production of profits subject to tax in Hong Kong will be deductible and, therefore, some payments to employees may not be deductible.

Remuneration will generally be deductible during the year of assessment in which it is incurred, but it should be noted that the Hong Kong Inland Revenue Department considers that the issue of shares by an employer to employees in fulfilment of share options or stock awards is not an expense, but a movement in the equity reserve account of the employer, and therefore no tax deduction is allowed. Payments to a third party (e.g., a listed parent) for the issuance of shares may be deductible under normal rules in relation to deductibility. Where an employer is recharged for shares issued or acquired by another group entity, if there is a written recharge agreement in place, the recharge in relation to both new issues of shares and acquisition of shares from the market by a group entity is allowable for deductions under the current guidelines published by the Hong Kong Inland Revenue Department. However, the employer can only claim a deduction for the recharge at the point of exercise of stock options or point of vesting of share awards and the amount claimed must not be excessive.

iv Other special rules

Payments made to employees in connection with a change of control will generally not be deductible for the profits tax purposes of the employer, unless it can be shown that the payments are current expenses incurred for the production of profits.

Benefits provided by an employer to an employee in return for services rendered will generally be chargeable to salaries tax if they are convertible into cash. A benefit can be convertible by sale, but also by other means: for example, an arrangement whereby the employee can elect to surrender the benefit and accept extra salary instead. Housing and vehicles are frequently provided to employees in Hong Kong on a tax-favoured basis. This is permissible provided that the rules in relation to such benefits are properly followed.

Tax planning and other considerations

As discussed in Section II, no salaries tax is chargeable on the income of any employee who is physically present in Hong Kong for no more than 60 days in a year of assessment, regardless of whether they are in Hong Kong employment. The simplest arrangement would therefore be one where the employee does not stay in Hong Kong for more than 60 days in a year of assessment.

Where it is necessary for an employee to be based in Hong Kong for more than 60 days in a year of assessment, a secondment arrangement can be used. It is generally accepted that a secondee continues to be employed by the original employer. If the secondment can be shown as non-Hong Kong employment, the employee would be subject to Hong Kong salaries tax on a time-apportionment basis, which is only chargeable for services rendered during the days spent in Hong Kong.

Some double taxation agreements may provide for an exemption from salaries tax for a foreign resident if that resident is present in Hong Kong for no more than 183 days during any single year of assessment, his or her remuneration is not paid by a Hong Kong-resident employer or one with a permanent establishment in Hong Kong, and the remuneration is subject to tax in his or her home jurisdiction.

Employment law

Hong Kong employment law is broadly similar to English employment law but is less regulated, and there are some significant differences that employers need to be aware of when operating in this jurisdiction. Employment law in Hong Kong is governed primarily by the Employment Ordinance, which applies to all employees (with limited exceptions such as family members in small businesses) and to secondees on foreign employment contracts.2 There is no at-will concept in Hong Kong, and employment is contractual and must be terminated in accordance with contractual terms or as otherwise provided by law.

i Confidential information

Hong Kong law recognises and protects trade secrets and confidential information, but information that is public or that forms part of an employee's own knowledge is generally not protected. The duty of fidelity or fiduciary duties will protect an employer during an employment relationship, but it is recommended that contractual provisions or a non-disclosure agreement are used to expressly protect company property (including information) during the post-employment period.

ii Corporate transfers

There is no automatic right of transfer in Hong Kong; therefore, employees must be dismissed by the seller and re-engaged by the buyer. Termination triggers the payment of statutory and contractual entitlements including (if relevant thresholds are met) severance. In Hong Kong, the term 'severance' has a specific legal meaning (i.e., it is payable only to employees who have at least 24 months' continuous service when the reason for dismissal is redundancy) and should not be used to refer to a termination package in general.

On transfer, there are statutory provisions that, if followed, negate the requirement to make a statutory severance payment to employees if the transfer is connected to the sale of a business or is within a single group of companies. To satisfy the requirements, the buyer must offer suitable employment on terms and conditions that are the same or no less favourable than the previous employment, recognise prior service and make this offer at least seven days prior to the transfer. Note that employees who have at least five years' service may still be entitled to a statutory long service payment (calculated in the same way as a statutory severance payment) if they refuse the offer of employment from the buyer and are subsequently dismissed by the seller.

There are no statutory rules applying to a change in control of a company; therefore, contractual terms will govern entitlements and suchlike, where these exist.

iii Deductions

It is not permissible for deductions to be made from an employee's salary unless they fall within one of the authorised categories set out in the Employment Ordinance. This means, for example, that employers will need to administer share incentive plans differently to ensure that employee contributions come directly from an employee's personal bank account in order to avoid criminal liability under the Employment Ordinance.

iv Garden leave and notice periods

The effectiveness of garden leave clauses is affected by a mandatory term in the Employment Ordinance, which allows both employers and employees to make a payment in lieu of notice to terminate the employment contract. This right cannot be overridden by any contractual provision, including a garden leave clause. Another significant mandatory term is an employee's right to serve notice at any time. This means that contractual provisions seeking to restrict when notice can be served (at the expiry of a fixed period, for example) will be overridden by the Employment Ordinance. Therefore, the importance of having enforceable post-termination restrictions cannot be overstated.

v Post-termination restrictions

Employers typically include post-termination restrictions in their standard employment contracts for senior executives. The four common types of post-termination restrictions are:

  1. non-competition;
  2. non-solicitation of employees;
  3. non-solicitation or non-dealing with customers; and
  4. non-solicitation of suppliers.

If the post-termination restrictions are held to be enforceable, then an employer may be able to obtain an injunction to enforce the terms or obtain monetary damages.

The Hong Kong courts take a similar approach to the English courts when analysing post-termination restrictions. The restrictions must be confined to protect the employer's legitimate business interests and should go no further than necessary to protect that interest, and any restriction should not unduly injure the interests of an employee or the public. Restrictions must be reasonable in terms of duration, scope and geographical application. The courts will consider a broad range of factors when analysing whether a restriction is reasonable, which include:

  1. the seniority of the employee;
  2. whether the employee had access to key confidential information;
  3. the duration of restraints and the scope of prohibited activities; and
  4. whether any payments were made during the restricted period (this is not a requirement, but will form part of the analysis).

The Hong Kong courts adopt a stringent approach when assessing the enforceability of post-termination restrictions. Employers should be mindful of the need to produce convincing evidence to support the reasonableness of any restrictions. In the case of Cantor Fitzgerald Europe and Another v. Jason Jon Boyer and Others,3 the court conducted a detailed examination of restrictions imposed on four employees, which ranged from three to 12 months in duration. The court found all the restrictions unenforceable either on the basis that there was no breach or that the employer had failed to provide cogent evidence to justify the length of the restriction, or the drafting was too wide or ambiguous.

Unlike in other jurisdictions, such as mainland China, there is no obligation to make payment during a post-termination restraint period. Payment will not render an otherwise unenforceable restriction reasonable and enforceable, but payment for the restriction may be of assistance in borderline cases.

vi Termination

Termination generally takes place by one party giving the contractually agreed notice to the other. If no notice is agreed in a signed employment contract, the Employment Ordinance deems it to be one month. Either party is entitled to terminate with immediate effect by making a payment in lieu of notice.

An employer may terminate a contract of employment without notice or payment in lieu if the employee commits certain statutorily defined misconduct in relation to his or her employment, or on any other ground provided by common law. This is referred to as summary dismissal in Hong Kong, and it does not include termination for poor performance. Employers need to exercise care when summarily dismissing employees, particularly when employees are highly remunerated. The High Court has previously awarded an employee damages of over HK$15.8 million in a case for wrongful dismissal and breach of the implied duty of trust and confidence.4 The case was quite unusual in its facts, but it does serve to highlight the need for employers to verify core facts and to gather supporting evidence prior to summarily dismissing, as the potential cost implications of failing to do so may be significant.

An employee may resign without notice or payment in lieu and claim constructive dismissal if the employer commits a repudiatory breach of contract, such as unilaterally reducing salary or undermining the mutual trust and confidence of the employment relationship. Post-termination restrictions do not survive the employee's dismissal in breach of contract.

Employees with more than two years of service are protected against dismissal without a valid reason as defined in the Employment Ordinance. The implications for wrongful termination or dismissal without a valid reason are low value from a financial perspective; however, in the event of an unreasonable dismissal (or unlawful variation in terms of employment), the employer may be ordered to reinstate or re-engage the employee, or to make a terminal payment.

The Labour Tribunal may order the compulsory reinstatement or re-engagement of an employee who has been unreasonably and unlawfully dismissed without the need to first secure the employer's agreement. Prior to 19 October 2018, both an employer and employee's consent was required to make such an order.

If the employer does not reinstate or re-engage an employee as required by the order, the employer must pay a penalty to the employee, in addition to any termination payments (as described below), amounting to three times the employee's average monthly wages (subject to a ceiling of HK$72,500). The employer commits an offence if he or she wilfully and without reasonable excuse fails to pay the further sum.

If there is an underlying risk of an allegation that termination was for a discriminatory reason, then care should be exercised, as there is no upper limit on damages in such claims. In Hong Kong, discrimination is unlawful on the grounds of sex, marital or family status, pregnancy, breastfeeding, disability or race.

While no statutory protections apply to an employee's sexuality, in June 2019, the Hong Kong Court of Final Appeal unanimously delivered its second landmark ruling in favour of the LGBT+ community, affirming that same-sex couples who are legally married overseas (same-sex marriage is not currently lawful in Hong Kong) are entitled to the same spousal employment and tax benefits enjoyed by heterosexual married couples in the circumstances under consideration.5 This decision will be particularly significant to employers who frequently hire employees from overseas.

In principle, there is no impediment to obtaining a full release from an employee against all employment liabilities. The level of payment to be made under any release agreement will depend upon the individual circumstances of the matter.

vii Bonuses

It is common for a bonus to form part of the total compensation package of a senior employee. There is no statutory requirement to pay a bonus in Hong Kong but, depending upon the manner in which the bonus wording is articulated, certain types of bonuses will be subject to regulations in the Employment Ordinance.

If a bonus is annual, it is likely to fall within the definition of an end-of-year payment under the Employment Ordinance unless it is paid solely at the employer's discretion. The Hong Kong courts have interpreted this to mean that the decision whether to make a bonus payment must be discretionary. Bonuses that are not guaranteed but are based on performance formulas are not discretionary under Hong Kong law and will be regulated by the Employment Ordinance.

There are specific payment rules in the Employment Ordinance for end-of-year payments. The most significant one is that a prorated payment must be made to employees who are dismissed after three months' service in the bonus year (discounting any probationary period, and excluding cases of summary dismissal). It is not possible for employers to contract out of these payment rules, for example by requiring an employee to be in active employment on the payment date.

If a bonus is not annual, it will not be an end-of-year payment, but if it is payment for work that has been or will be done, it will fall within the definition of wages under the Employment Ordinance irrespective of whether it is discretionary. This means that the bonus will increase the value of certain statutory payments (such as annual leave pay and sick leave pay), which are based on average wages earned in the 12 months prior to the start of the annual leave or sick leave, or a similarly relevant date. This will have a significant upward effect on statutory payments for employees whose incomes are primarily derived from variable payments. Therefore, it is advisable to adopt bonus schemes that are both genuinely discretionary and annual as they are neither end-of-year payments nor wages in accordance with the Employment Ordinance.

The payment (or failure to make payment) of discretionary bonuses often results in employment disputes. An employer is required to exercise its discretion reasonably and in good faith, and not irrationally or perversely such that no reasonable employer would have exercised the discretion in such a manner. This has been interpreted to mean that employers may take into account only those factors specified in the contract when determining whether to pay a bonus.

Following a Court of First Instance decision,6 employers operating discretionary bonus schemes in Hong Kong will need to be more cautious when dismissing employees part way through a bonus cycle. This is particularly so in circumstances where the employer is unlikely to be able to show a genuine reason for the dismissal and the termination would prevent the employee from becoming eligible for a discretionary bonus. In Sunny Tadjudin v. Bank of America, National Association,7 the Court found that an implied term of anti-avoidance in relation to bonuses can exist in a contract of employment and did exist in Ms Tadjudin's contract. The Court held that the Bank was in breach of this implied term when it terminated the employment of Ms Tadjudin in a manner that prevented her from being eligible for a bonus for 2007 under the Bank's performance incentive programme.

The Court found that the implied term of anti-avoidance existed after a careful examination of the terms in the employment contract and the way in which the bank operated its discretionary bonus scheme, including its commitment to pay for performance and the lack of business efficacy without the implied term. As a result of this decision, there is a risk that the anti-avoidance term will be implied in employment contracts and all relevant circumstances will be taken into account in determining whether it exists. To avoid this risk, the anti-avoidance term may be specifically excluded by an express contractual term, although this has not yet been tested in court.

The Court of Appeal8 upheld the Court of First Instance's finding of the implied anti-avoidance term in Ms Tadjudin's employment contract, but importantly clarified that this was a finding based on the particular facts and circumstances of this case, and it did not mean that this term should be implied in employment contracts generally. It would be prudent for employers to tread carefully when dismissing employees part way through a bonus cycle while a body of case law on this implied term develops.

Securities law

In Hong Kong, the two major pieces of legislation regulating the offering of securities are the Companies (Winding Up and Miscellaneous Provisions) Ordinance9 and the Securities and Futures Ordinance.10

Under the Companies (Winding Up and Miscellaneous Provisions) Ordinance, a document must comply with the prospectus content and registration requirements where that document: offers any shares in, or debentures of, a company (whether incorporated in Hong Kong or elsewhere) to the public for subscription or purchase for cash or other consideration; or is calculated to, invite offers by the public to subscribe for, or purchase for cash or other consideration, any shares in or debentures of a company (whether incorporated in Hong Kong or elsewhere).11

The offering of shares or debentures (or any right, option or interest in, or in relation to the shares or debentures) in a company to employees located in Hong Kong is generally subject to an exemption from the prospectus content and registration requirements. The above exemption is available if the following conditions are met:

  1. the offer is in respect of shares or debentures (or any right, option or interest in, or in relation to the shares or debentures) of a company;
  2. the offer is made to persons who are qualifying persons in respect of the company or another company that is a member of the same group of companies as the company (group company);
  3. the offer is made by the company, a group company or the trustees of a trust established by the company or a group company that holds the shares or debentures that are the subject of the offer;
  4. the offer is on terms whereby the only persons who can acquire the shares or debentures are the qualifying persons to whom they are offered or, if the terms of the offer so permit, any qualifying person; and
  5. the offer contains a prescribed warning statement in a prominent position.12

Qualifying person, in relation to a company, means:

  1. a current or former bona fide director, employee, officer or consultant of a company; or
  2. a bona fide dependant of any of the aforementioned persons; and
  3. includes a trustee of a trust established by the company or a group company that can hold shares or debentures on behalf of any of the above persons.13

Prospectus requirements are also applicable in situations where an offering is made with a view to secondary offers of the shares or debentures to the public.14 The Companies (Winding Up and Miscellaneous Provisions) Ordinance creates a rebuttable presumption that a secondary offer to the public was intended if, among other things, an offer of the shares or debentures for sale to the public is made within six months of the original allotment or agreement to allot the shares or debentures.15 This presumption could be rebutted if appropriate vesting schedules or restrictions on disposal of shares or debentures within a specific time period are imposed so that disposals within the relevant six-month period are prohibited. In practice, however, it may be rare for an employee to have a sufficiently large holding of shares or debentures to consider disposing of his or her stake by means of an offering to the public.

Where the offering involves products that constitute securities or structured products,16 such as the offering of phantom or cash-settled awards, based on the nature of the securities involved, the securities offering prohibition under the Securities and Futures Ordinance may apply. In the absence of an applicable exemption, the issue or possession for the purpose of issue of any advertisement, invitation or document containing an invitation to the public to acquire securities must be authorised by the Securities and Futures Commission. Employees located in Hong Kong constitute the public for the purpose of the securities offering prohibition under the Securities and Futures Ordinance. In such a case, depending on the nature of the securities involved, it may be necessary to rely on offering by way of private placement or other exemptions. There are no prescribed legal requirements that executives must hold stock of their employer; nor are there particular rules that apply with respect to executives selling company stock on the market. Further, there are no short-swing trading or anti-hedging legal obligations that are specifically applicable to executives in Hong Kong. However, it is important to note that executives must have regard to provisions with respect to insider dealing and other market misconduct under the Securities and Futures Ordinance in dealing with listed securities or their derivatives. Where executives are also directors of a company whose securities are listed on the Stock Exchange of Hong Kong Limited, they will be subject to more stringent requirements and standards17 in their capacity as directors of a listed company.

Directors and chief executives of companies whose securities are listed on the Stock Exchange of Hong Kong Limited come under a duty of disclosure of all their interests and dealings in shares, short positions and debentures in a listed company or any associated corporation of the listed company under the Securities and Futures Ordinance.18 Directors and chief executives of a listed company are taken to be interested in any shares, short positions and debentures in which (among others) their spouse or minor children are interested.19 Particulars to be disclosed include the date on which the relevant event occurred, the total number and class of shares, short positions or debentures involved and details of changes in such interests.20 The listed company concerned is required to include information relating to the interests and short positions of such directors, chief executives and others in the shares, underlying shares and debentures of the listed company or any associated corporation in its financial reports.21


Information about benefits received by a director of a private company is subject to disclosure in the company's annual audited statements, including the directors' report therein (where appropriate), under law. Accordingly, any such benefit received by executives or employees who are also directors of a private company is subject to disclosure. These benefits include the company's arrangements that enable directors to acquire benefits by means of the acquisition of shares in or debentures of the company or any other body corporate; directors' emoluments and retirement benefits; payments in respect of termination of directors' services; and consideration for directors' services (where applicable). Apart from submitting the annual audited statements to the tax authority for tax assessment purposes, private companies are not required to file their annual audited statements with the Companies Registry. The information about benefits received by directors that is disclosed in the annual audited statements of private companies is generally not available to the public.

Depending on the circumstances of each case, companies listed in Hong Kong may be required to publicly disclose certain remuneration information about the executives of the listed group of companies. In principle, a listed company should disclose its directors' remuneration policy and other remuneration-related matters (see Paragraph B of Appendix 14 of the Listing Rules).

A listed company is required to disclose in its financial statements information in respect of the five highest-paid individuals during the financial year, including:

  1. the aggregate of basic salaries, housing allowances, other allowances and benefits in kind;
  2. the aggregate of contributions to pension schemes;
  3. the aggregate of bonuses paid or receivable;
  4. the aggregate of amounts paid or receivable as an inducement to join or upon joining the listed company;
  5. the aggregate of compensation paid or receivable for a loss of office; and
  6. an analysis showing the number of individuals whose remuneration fell within bands from zero up to HK$1 million or into higher bands.22

It is not, however, necessary to disclose the identity of the highest-paid individuals, unless any of them is a director of the listed company.23

A listed company is also required to disclose in its financial statements details of directors' and past directors' emoluments during the financial year, including:

  1. directors' fees; 24
  2. directors' basic salaries, housing allowances, other allowances and benefits in kind; 25
  3. contributions to pension schemes for directors or past directors; 26
  4. discretionary or performance-based bonuses paid or receivable by directors; 27
  5. the amounts paid or receivable by directors as an inducement to join or upon joining the listed company; 28
  6. the compensation paid or receivable by directors or past directors for a loss of office; 29
  7. particulars of any arrangement under which a director has waived or agreed to waive any emoluments; 30 and
  8. a general description of the group's emolument policy and any long-term incentive schemes of the group, and the basis of determining the emolument payable to its directors.31

A listed company should also disclose details of any remuneration payable to members of senior management by band in its annual report,32 or give considered reasons for any deviation from such disclosure requirement.33

In relation to each share option scheme adopted by a listed company or any of its subsidiaries pursuant to Chapter 17 of the Listing Rules, the listed company must disclose in its annual report and interim report the following information in relation to:

  1. each of the directors, the chief executive or substantial shareholders of the listed company, or their respective associates;
  2. each participant with options granted in excess of the individual limit;
  3. aggregate figures for employees working under employment contracts that are regarded as continuous contracts for the purposes of the Employment Ordinance;
  4. aggregate figures for suppliers of goods or services; and
  5. all other participants as an aggregate whole:
    • particulars of outstanding options at the beginning and end of the financial year or period, including number of options, date of grant, vesting period, exercise period and exercise price;
    • particulars of options granted during the financial year or period, including number of options, date of grant, vesting period, exercise period, exercise price and (for options over listed securities) the closing price of the securities immediately before the date on which the options were granted;
    • the number of options exercised during the financial year or period with the exercise price and (for options over listed securities) the weighted average closing price of the securities immediately before the dates on which the options were exercised;
    • the number of options cancelled during the financial year or period together with the exercise price of the cancelled options; and
    • the number of options that lapsed in accordance with the terms of the scheme during the financial year or period.34

In addition, in respect of options granted during the financial year or period over listed securities, the listed company is encouraged to disclose in its annual report and interim report the value of options granted to participants set out above during the financial year or period, and the accounting policy adopted for the share options. Where the listed company considers that disclosure of the value of options granted during the financial year or period is not appropriate, it must state the reason for such non-disclosure in its annual report or interim report.35

A listed company should also disclose (where applicable) details of the number and remuneration of employees, remuneration policies, bonus and share option schemes and training schemes in the listed company's annual report.36

In addition, a listed company is also required to include in its annual report a statement as to the unexpired period of any service contract, which is not determinable by the employer within one year without payment of compensation (other than statutory compensation), of any director proposed for re-election at the forthcoming annual general meeting or, if there are no such service contracts, a statement of that fact. For a PRC company listed on the Stock Exchange of Hong Kong Limited, a reference to 'director' in this context shall also mean and include supervisors.37

Corporate governance

The disclosure of remuneration of executives who are directors of private companies and listed companies is set out in Section VI.

i General rules

Listed companies are subject to corporate governance requirements such as setting up an audit committee,38 a remuneration committee39 and a nomination committee.40 Every listed company must establish an audit committee comprising non-executive directors only. The audit committee must have at least three members, at least one of whom is an independent non-executive director with appropriate professional qualifications, or accounting or related financial management expertise. The majority of the audit committee members must be independent non-executive directors of the listed company. The chair of the audit committee must be an independent non-executive director.41 The principal objective of an audit committee is to, inter alia, provide an independent review of the effectiveness of the financial reporting process, risk management and internal control systems.

All listed companies must set up a remuneration committee in accordance with the requirements of the Listing Rules, including Rules 3.25 to 3.27. The remuneration committee must be chaired by an independent non-executive director, and a majority of its members shall be independent non-executive directors.42 The principal purpose of setting up a remuneration committee is, among other things, to assist the board of directors to ensure that there is a transparent policy governing directors' remuneration. It should also be responsible for making recommendations on specific remuneration packages for executive directors and senior management, and reviewing and approving compensation payments relating to the dismissal, loss or termination of the office of executive directors and senior management.

All listed companies should establish a nomination committee that comprises a majority of independent non-executive directors and is chaired by the chair of the board or an independent non-executive director. The principal purpose of setting up a nomination committee is, among other things, to assist the board to review the structure, size and composition of the board. It should also be responsible for making recommendations to the board on the appointment or reappointment of directors and succession planning for directors, especially for the chair and the chief executive.43 Nevertheless, setting up a nomination committee is not a mandatory requirement under the Listing Rules,44 except for a listed company with a weighted voting rights (WVR) structure.45 So long as a listed company is able to explain the reasons for not following these provisions and why good corporate governance is achieved by means other than strict compliance with these provisions, it may choose not to have a nomination committee.46

All listed companies must include in their annual report the following information for each of the audit committee, remuneration committee, nomination committee, risk committee (if any) and corporate governance functions:

  1. the role and function of the committee;
  2. the composition of the committee and whether it comprises independent non-executive directors, non-executive directors and executive directors (including their names and identifying the chair of the committee);
  3. the number of meetings held by the committee during the year to discuss matters and the record of attendance of members, by name, at meetings held during the year; and
  4. a summary of the work during the year.47

ii Additional rules for special companies with weighted voting rights structures

In addition to the general corporate governance requirements, a listed company with a WVR structure must establish a corporate governance committee that comprises entirely independent non-executive directors, one of whom must act as the chair.48 A summary of the work of the Corporate Governance Committee, with regards to its terms of reference, must be included in the annual report and interim report of the listed issuer.49 Listed companies with a WVR structure must establish a nomination committee, which must be chaired by an independent non-executive director.50 Certain corporate governance requirements for companies with WVR structures (including the foregoing requirements relating to corporate governance committee and nomination committee) do not apply to qualifying companies that have, or are seeking, a secondary listing on the Stock Exchange of Hong Kong Limited.51 Executive remuneration packages do not require any union or works council approval in Hong Kong. Membership of trade unions is relatively low in Hong Kong, and collective bargaining is not recognised. Generally, employers and unions do not enter into agreements on remuneration or otherwise.

Additional requirements apply to executive remuneration for certain employers in the finance industry: these are set out in Section VIII.

Specialised regulatory regimes

There are guidelines applying to executive remuneration for relevant employers operating within specialised industries, such as the banking industry in Hong Kong.

The HKMA, which is the supervisory body for the banking sector, issued a Guideline on a Sound Remuneration System (the Guideline) in March 2010 (which has been updated and revised on several occasions, most recently in July 2021) to all authorised institutions (AIs) (fully licensed banks, restricted licence banks and deposit-taking companies).52 The Guideline applies to all AIs in Hong Kong, including in the case of locally incorporated AIs, their overseas branches and subsidiaries subject to the HKMA's consolidated supervision. In the case of overseas incorporated AIs, the remuneration systems applicable to officers and employees engaged in the conduct of their business and operations in Hong Kong must be sound and in compliance with the Guideline. Where an AI in Hong Kong is part of a banking group (either a subsidiary of a banking group or a branch of an overseas incorporated bank), it may adopt the remuneration policy formulated at group level if it can demonstrate to the HKMA's satisfaction that the relevant group remuneration policy is broadly consistent with the principles set out in the Guideline.

The Guideline provides broad guidance on the governance and control arrangements for, and operations of, AIs' remuneration systems. It sets out key elements of a sound remuneration system, covering governance, the structure of remuneration, the measurement of performance for variable remuneration, the deferment of variable remuneration (including minimum vesting periods, predefined performance conditions and clawback provisions) and adequate disclosure on remuneration. The Guideline distinguishes between fixed and variable incentive-based remuneration, but there are no specific provisions that deal with bonuses or that impose specific limits to the relationship between fixed and variable remuneration.

Global financial services regulators, including those in Hong Kong, continue to focus on factors, particularly compensation structures, which may encourage sales staff to inappropriately recommend or sell investment products. Similar regulatory scrutiny is occurring in other industries as part of general corporate governance reforms or reporting transparency initiatives. Readers should carefully consider whether there are any industry-specific guidelines that are applicable to their proposed remuneration arrangements and may impact factors including the calculation methodology, caps or clawbacks on incentive remuneration and ensure that these requirements are also addressed.

Developments and conclusions

There is a continued focus on executive remuneration in the media. Although corporate governance and accountability in Hong Kong are less well developed as compared with other jurisdictions, companies continue to be placed in the spotlight by investors, shareholders and the public alike on the issue of salaries, bonuses, deferred compensation and high-value exit packages. There is growing pressure for incentive arrangements to be structured on a long-term basis and to have an improved link between pay and performance, as well as for increased transparency in general. Companies are responding to these pressures, as the preference is to deal with these issues internally rather than have externally imposed rules on executive pay.


1 Rowan McKenzie, Steven Sieker and Karen Man are partners at Baker McKenzie.

2 Cantor Fitzgerald Europe and Another v. Jason Jon Boyer and Others (HCA 1160/2011). The court upheld the right of a secondee employed under an employment contract governed by English law to terminate his employment with a UK company by making a payment in lieu of notice pursuant to Section 7 of the Employment Ordinance. Note the decision in the Cantor Fitzgerald case was in contrast to the decision of the Court of First Instance in HSBC Bank Plc. v. Wallace HCA 2422/2007. In the HSBC case, the judge found that the express choice of English law in the employment contract of the secondee would be valid, provided it was not an artificial device introduced to exclude the Employment Ordinance protection. Both cases were decided at the same court level and are therefore technically, of equal authority but the Cantor Fitzgerald case is the more recent of the two cases.

3 ibid.

4 Grant David Vincent Williams v. Jefferies HK Ltd, Court of First Instance (HCA 320/2011).

5 Leung Chun Kwong v. Secretary for the Civil Service and Commissioner of Inland Revenue [2019] HKFCA 19.

6 CFI, HCA322/2008.

7 ibid.

8 CACV 12/2015.

9 Chapter 32 of the Laws of Hong Kong.

10 Chapter 571 of the Laws of Hong Kong.

11 Section 2 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance.

12 Section 8 of Part 1 of Schedule 17 and Part 3 of Schedule 18 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance.

13 Section 6 of Part 4 of Schedule 17 of the Companies (Winding Up and Miscellaneous Provisions).

14 Section 41(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance.

15 Section 41(2) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance.

16 A structured product is defined in Schedule 1 to the Securities and Futures Ordinance. It excludes, among other things, a product under which some or all of the return or amount due (or both the return and the amount due) or the method of settlement is determined by reference to securities of a corporation, or of a related corporation (as defined in the Securities and Futures Ordinance) of the corporation, and that is issued by the corporation only to a person who is a bona fide employee or former employee of the corporation or of a related corporation of the corporation; or a spouse, widow, widower, minor child (natural or adopted) or minor stepchild of such person. The policy intention behind this is to exclude certain employee incentive schemes (such as certain phantom share option schemes) that are issued by and referenced to securities of the corporation itself (or of a related corporation) from the regulatory regime for structured products.

17 The Model Code for Securities Transactions by Directors of Listed Issuers, Appendix 10 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the Listing Rules).

18 Sections 341 to 343 and 348 of the Securities and Futures Ordinance.

19 Section 344 of the Securities and Futures Ordinance.

20 Section 349 of the Securities and Futures Ordinance.

21 The Listing Rules, Paragraph 13(1) of Appendix 16.

22 ibid., Paragraph 25 of Appendix 16.

23 ibid., Paragraph 25.1 of Appendix 16.

24 ibid., Paragraph 24(1) of Appendix 16.

25 ibid., Paragraph 24(2) of Appendix 16.

26 ibid., Paragraph 24(3) of Appendix 16.

27 ibid., Paragraph 24(4) of Appendix 16.

28 ibid., Paragraph 24(5) of Appendix 16.

29 ibid., Paragraph 24(6) of Appendix 16.

30 ibid., Paragraph 24A of Appendix 16.

31 ibid., Paragraph 24B of Appendix 16.

32 ibid., Code Provision B.1.5 of Appendix 14.

33 ibid., Preamble to Appendix 14.

34 ibid., Rule 17.07.

35 ibid., Rule 17.08.

36 ibid., Paragraph 32(7) of Appendix 16.

37 ibid., Paragraphs 14 and 14.1 of Appendix 16.

38 ibid., Rule 3.21.

39 ibid., Rule 3.25.

40 ibid., Paragraph A.5.1 of Appendix 14.

41 ibid., Rule 3.21.

42 ibid., Rule 3.25.

43 ibid., Paragraph A.5.2(d) of Appendix 14.

44 Paragraph A.5.1 of Appendix 14 and Preamble to Appendix 14.

45 ibid., Rule 8A.27.

46 ibid., Paragraph A.5.1 of Appendix 14 and Preamble to Appendix 14.

47 ibid., Paragraph L of Appendix 14.

48 ibid., Rule 8A.31.

49 ibid., Rule 8A.32.

50 ibid., Rule 8A.27 and Rule 8A.28.

51 ibid., Rule 19C.12.

The Law Reviews content