This is the article that I mentioned in a recent previous post. This does not mean that i agree with the contents of the article however it is important to consider in any company the wages and compensation of directors are reflected in the performance of the company and shareholders returns.
Is MedAdvisor Limited’s (ASX:MDR) CEO Incentives Align With Yours?
Bryan Cramer April 24, 2018
Robert Read took the helm as MedAdvisor Limited’s (ASX:MDR) CEO and grew market cap to AU$60.62M 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. Today we will assess Read’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. See our latest analysis for MedAdvisor Did Read create value?
Profitability of a company is a strong indication of MDR’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Read’s performance. Most recently, MDR produced negative earnings of -AU$3.65M . However, this is an improvement on prior year’s loss of -AU$4.01M, which may signal a turnaround since MDR has been loss-making for the past five years, on average, with an EPS of -AU$0.0049. Given earnings are moving the right way, CEO pay should mirror Read’s hard work. During the same period, Read’s total compensation rose by 48.29% to AU$705.06K. Furthermore, Read’s pay is also made up of 23.92% non-cash elements, which means that fluxes in MDR’s share price can impact the true level of what the CEO actually receives.
ASX:MDR Past Future Earnings Apr 23rd 18 What’s a reasonable CEO compensation?
While no standard benchmark exists, since compensation should account for specific factors of the company and market, we can evaluate a high-level benchmark to see if MDR is an outlier. This exercise helps investors ask the right question about Read’s incentive alignment. Generally, an Australian small-cap has a value of $140M, creates earnings of $10M, and remunerates its CEO circa $500,000 per year. Typically I would use earnings and market cap to account for variations in performance, however, MDR’s negative earnings lower the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Read’s pay exceeds its peer group. What this means for you:
The next CEO pay bump should be questioned by shareholders at AGM voting. Given that Read’s pay is already above the bracket of other CEOs of similar companies, what justifies a further increase? Although CEO pay is not the be all and end all, it serves as a signal as to whether the board’s and management’s incentives are aligned with the rest of the shareholders. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
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