Why Admedus Limited’s (ASX:AHZ) CEO Pay Matters To You
Ashwin Virk Simply Wall St.November 23, 2017
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Wayne Paterson took the reins as CEO of Admedus Limited’s (ASX:AHZ) and grew market cap to AUDA$72.62M recently. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. I will break down Paterson’s pay and compare this to the company’s performance over the same period, as well as measure it against other Australian CEOs leading companies of similar size and profitability. Check out our latest analysis for Admedus What has been the trend in AHZ’s earnings?
AHZ can create value to shareholders by increasing its profitability, which in turn is reflected into the share price and the investor’s ability to sell their shares at higher capital gains. In the past year, AHZ produced negative earnings of -A$12M . However, this is an improvement on prior year’s loss of -A$24M, which may signal a turnaround since AHZ has been loss-making for the past five years, on average, with an EPS of -A$0.1. As profits are moving up and up, CEO pay should be reflective of Paterson’s value creation for shareholders. During the same period, Paterson’s total compensation increased over two-fold, reaching A$1,011,618 .
ASX:AHZ Past Future Earnings Nov 24th 17
More What’s a reasonable CEO compensation?
Even though one size does not fit all, as compensation should account for specific factors of the company and market, we can gauge a high-level thresold to see if AHZ deviates substantially from its peers. This outcome can help shareholders ask the right question about Paterson’s incentive alignment. Typically, an Australian small-cap is worth around $140M, produces earnings of $10M, and remunerates its CEO at roughly $500,000 per annum. Usually I’d use market cap and profit as factors determining performance, however, AHZ’s negative earnings lower the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Paterson’s pay outstrips those in comparable companies. What this means for you:
Are you a shareholder? CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Why is Paterson remuneration above that of similar companies? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours. To find out more about AHZ’s governance, look through our infographic report of the company’s board and management. Are you a potential investor? In order to determine whether or not you should invest in AHZ, your thesis should be built on fundamentals. Even though CEO pay isn’t technically a key concern, it could serve as an indication as to how board members align incentives and how they think about setting policies. These issues directly impacts how AHZ makes money, and factors impacting your return on investment. To research more about these fundamentals, I recommend you check out our simple infographic report on AHZ’s financial metrics.
AHZ Price at posting:
31.0¢ Sentiment: Hold Disclosure: Held
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