ASX:CGN Income Statement Dec 15th 17
What’s a reasonable CEO compensation?
While one size does not fit all, as remuneration should account for specific factors of the company and market, we can gauge a high-level yardstick to see if CGN deviates substantially from its peers. This outcome helps investors ask the right question about Parker’s incentive alignment. Generally, an Australian small-cap has a value of $140M, creates earnings of $10M, and remunerates its CEO at roughly $500,000 annually. Usually I’d use market cap and profit as factors determining performance, however, CGN’s negative earnings reduces the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Parker is paid aptly compared to those in similar-sized companies. Overall, although CGN is loss-making, it seems like the CEO’s pay is reflective of the appropriate level.
What this means for you:
Are you a shareholder? My conclusion is that Parker is not being overpaid. But your role as a shareholder should not end here. As above, this is a relatively simplistic calculation using high-level benchmarket. Proactive shareholders should question their representatives (i.e. the board of directors) how they think about the CEO’s incentive alignment with shareholders and how they balance this with retention and reward. To find out more about CGN’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? Whether Parker is over or underpaid should not be a deciding factor whether or not you invest in CGN. However, the way the company is governed and policies, such as remuneration, are structured, are important considerations for an investor. The best place to start is to understand how well CGN is placed financially. To research more about these fundamentals, I recommend you check out our simple infographic report on CGN’s financial metrics.
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The author is an independent contributor and at the time of publication had no position in the stocks mentioned.