HKEX Disclosure Requirements for Key Management Compensation

The Hong Kong Stock Exchange (HKEX) is intensifying its scrutiny of listed issuers’ disclosure practices regarding key management compensation, moving beyond a simple compliance check into a substantive review of governance and alignment with shareholder interests. This shift, driven by a 2025 thematic review and amendments to the Corporate Governance Code effective for financial years beginning on or after 1 January 2025, demands that issuers provide granular, individualised breakdowns of remuneration for directors and senior executives. The SFC and HKEX are now actively querying discrepancies between disclosed compensation and actual economic benefits, particularly in complex group structures and cross-border listings. For CFOs and company secretaries, the risk is no longer a technical non-compliance citation but a public reprimand or a suspension of trading for materially misleading disclosures. The following analysis dissects the specific rule requirements, common pitfalls, and the practical implications for issuers preparing their next annual report.

The Regulatory Framework: From Rule 13.51B to the New Code Mandates

The foundation for compensation disclosure lies in HKEX Main Board Listing Rules Chapter 13, specifically Rule 13.51B, which requires annual reports to contain particulars of directors’ and senior management’s remuneration. The 2025 Corporate Governance Code amendments, codified in Appendix C1, elevate this from a disclosure requirement to a governance principle.

Individualised Disclosure for Directors

Rule 13.51B(1) mandates that the annual report must disclose the name and remuneration of each director in a single, consolidated table. The required breakdown includes: fees, salaries and allowances, discretionary bonuses, retirement scheme contributions, and the estimated monetary value of other benefits. The HKEX’s 2024 “Review of Annual Reports” noted that 12% of sampled issuers failed to provide a complete breakdown, often omitting the value of share-based payments or housing allowances. For Main Board issuers, the total aggregate remuneration for senior management (excluding directors) must also be disclosed, but the HKEX is increasingly pushing for individualised disclosure where a senior executive’s compensation is materially disproportionate.

The 2025 Code: Remuneration Committees and Pay Ratio

Effective for financial years beginning on or after 1 January 2025, the revised Corporate Governance Code (Code Provision E.1.8) requires the remuneration committee to consider and recommend the remuneration of all directors and senior management. The committee must also review and approve the disclosure of key management personnel compensation in the annual report. Critically, the new Code Provision E.1.9 introduces a mandatory pay ratio disclosure: the ratio of the CEO’s total remuneration to the median of all other employees. This ratio must be accompanied by a narrative explanation of the methodology and any factors causing significant year-on-year changes. The HKEX’s stated rationale, per its 2024 Consultation Conclusions on the Corporate Governance Code, is to enhance transparency on executive pay relative to workforce compensation.

Senior Management: A Broader Definition

The definition of “senior management” under Rule 1.01 includes directors, the company secretary, and any other person who is a member of the senior management team as determined by the board. The HKEX’s “Guidance on the Disclosure of Directors’ and Senior Management’s Remuneration” (HKEX-GL86-16) clarifies that this includes any individual who participates in the formulation of the issuer’s strategy and operational decisions, regardless of their formal title. A 2023 enforcement case (HKEX Statement of Disciplinary Action, 15 June 2023) involved a Main Board issuer that excluded three department heads from senior management disclosure. The HKEX found this constituted a breach of Rule 13.51B, as the individuals had board-level decision-making authority, and imposed a public censure.

Common Pitfalls in Cross-Border and VIE Structures

Issuers with complex corporate structures, particularly those using Variable Interest Entity (VIE) arrangements or having substantial operations in the People’s Republic of China (PRC), face heightened disclosure risks. The HKEX’s 2025 thematic review on VIE structures explicitly flagged compensation disclosure as a recurring deficiency.

The VIE Conundrum: Who is Key Management?

In a typical VIE structure, the Hong Kong-listed issuer (often incorporated in the Cayman Islands or Bermuda) does not directly employ the PRC operating entities’ management. The HKEX’s “Listing Decision LD43-3” (2018) established that the key management personnel of the consolidated VIE entities must be disclosed as senior management of the listed group if they have strategic influence over the listed issuer’s business. This means the CEO of the PRC operating company, even if not a director of the Cayman parent, must be listed in the senior management remuneration table. A 2024 review of 20 VIE-structured issuers by a major law firm (Mayer Brown, “VIE Disclosure Trends”, October 2024) found that 35% failed to identify at least one such individual, leading to subsequent HKEX clarification requests.

Share-Based Payments: Valuation and Vesting Schedules

Disclosure of share-based compensation is a frequent source of restatements. Rule 13.51B requires the estimated monetary value of benefits, which includes the fair value of share options and restricted share units (RSUs) at the grant date. The HKEX’s “Guidance on Share Schemes” (HKEX-GL117-23) specifies that issuers must disclose the number, vesting period, and performance conditions for each director’s share awards. A common error is reporting the intrinsic value (current market price minus exercise price) instead of the grant-date fair value calculated under HKFRS 2. The SFC’s 2024 “Report on Financial Reporting” highlighted that 8% of reviewed issuers misstated share-based compensation expense, with a median overstatement of HKD 12.5 million per issuer. For a director, the individualised table must show the grant-date fair value, not the eventual realised gain.

The Role of the Sponsor in Pre-IPO Compensation

For issuers preparing for an initial public offering (IPO), the sponsor must ensure that the prospectus discloses the total remuneration for the three financial years prior to listing for all directors and senior management, per Main Board Rule 11.08 and the “Guidance for Sponsors” (SFC Code of Conduct, paragraph 17.6). A 2025 enforcement action (SFC v. ABC Capital Limited, HCCT 45/2025) involved a sponsor that failed to verify the compensation arrangements for the PRC-based CFO, who was paid through a BVI subsidiary. The court found the sponsor’s due diligence deficient, as the CFO’s total compensation was HKD 8.7 million higher than what was disclosed in the prospectus. The sponsor was fined HKD 15 million and suspended for 18 months.

Practical Implications for Annual Report Preparation

The 2025-2026 reporting cycle will test issuers’ internal controls over compensation data aggregation and disclosure. The HKEX’s enhanced enforcement powers under the Listing Rules, including the ability to suspend trading for persistent disclosure failures, make this a board-level priority.

Data Aggregation Across Jurisdictions

Issuers with operations in multiple jurisdictions (e.g., Hong Kong, PRC, Singapore, and the United States) must aggregate compensation data for each individual from all entities. The HKEX’s “Guidance on the Disclosure of Remuneration” (HKEX-GL86-16, paragraph 4.2) states that compensation paid by any subsidiary, associate, or special purpose vehicle must be included. This requires a robust internal reporting process. A 2024 survey by the Hong Kong Institute of Certified Public Accountants (HKICPA, “Corporate Governance Disclosure Practices”, December 2024) found that 40% of issuers with more than five subsidiaries lacked a centralised system to track director compensation, increasing the risk of omission. For issuers with a 31 December year-end, the first reports under the new Code are due by 30 April 2026.

The Pay Ratio: Methodology and Narrative

The new pay ratio disclosure (Code Provision E.1.9) requires clear methodology. The HKEX’s “Guidance on Pay Ratio Disclosure” (May 2025) recommends using the same methodology as the issuer’s home jurisdiction, but if none exists, the ratio must be calculated using the “median employee” approach under HKFRS 2. The narrative must explain any significant changes from the prior year. For example, if the CEO’s ratio jumps from 25:1 to 40:1 due to a one-off bonus, the issuer must state the reason and whether the bonus is recurring. The SFC has indicated it will review pay ratio disclosures for consistency with the narrative on employee welfare in the ESG report.

Board Oversight and Internal Audit

The audit committee, under the new Code Provision D.3.1, must review the disclosure of key management compensation as part of its oversight of financial reporting. The internal audit function should verify the accuracy of the data provided by the human resources and finance departments. A 2025 HKEX “Thematic Review on Internal Controls” found that 15% of issuers had no documented process for approving and disclosing director compensation, and the HKEX recommended that these issuers implement a formal compensation policy approved by the remuneration committee by the 2026 annual general meeting.

Actionable Takeaways

1. Audit your senior management list now: ensure any individual with strategic influence over the listed group, including PRC VIE operating company executives, is identified and their compensation aggregated into the individualised disclosure table.
2. Verify share-based payment valuations: confirm that the fair value of all share options and RSUs granted to directors is calculated at grant date under HKFRS 2 and disclosed in the individual remuneration table, not as an aggregate figure.
3. Prepare the pay ratio methodology: for issuers with a 31 December year-end, the first mandatory pay ratio disclosure under Code Provision E.1.9 is due by 30 April 2026; document the calculation methodology and prepare a narrative explanation for any year-on-year variance.
4. Centralise compensation data: implement a system to track all compensation paid to directors and senior management across every subsidiary, associate, and special purpose vehicle in all jurisdictions to avoid omissions in the annual report.
5. Engage the sponsor early for IPO-bound issuers: ensure the sponsor’s due diligence on pre-IPO compensation covers all entities in the group structure, with particular attention to PRC-based executives paid through offshore vehicles.