Yahoo Finance Should You Worry About ikeGPS Group Limited’s (NZE:IKE) CEO Salary Level?
Glenn Milnes took the reins as CEO of ikeGPS Group Limited’s (NZSE:IKE) and grew market cap to NZ$39.23M recently. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. Today we will assess Milnes’s pay and compare this to the company’s performance over the same period, as well as measure it against other New Zealand CEOs leading companies of similar size and profitability. See our latest analysis for ikeGPS Group
What has been the trend in IKE’s earnings?
Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Recently, IKE produced negative earnings of -NZ$6.73M . But this is an improvement on prior year’s loss of -NZ$10.73M, which may signal a turnaround since IKE has been loss-making for the past five years, on average, with an EPS of -NZ$0.18. Given earnings are moving the right way, CEO pay should mirror Milnes’s valued-adding activities. Over the same period Milnes’s total remuneration grew by 15.62% to NZ$640.75K. Although I couldn’t find information on the composition of Milnes’s pay, if some portion were non-cash items such as stocks and options, then fluxes in IKE’s share price can impact the real level of what the CEO actually collects at the end of the year.
What’s a reasonable CEO compensation?
While there is no cookie-cutter approach, since remuneration should be tailored to the specific company and market, we can evaluate a high-level benchmark to see if IKE is an outlier. This outcome can help direct shareholders to ask the right question about Milnes’s incentive alignment. On average, a NZ small-cap has a value of $190M, generates earnings of $18M, and pays its CEO circa $480,000 annually. Normally I would use earnings and market cap to account for variations in performance, however, IKE’s negative earnings reduces the usefulness of my formula. Looking at the range of compensation for small-cap executives, it appears that Milnes’s pay exceeds its peer group.
What this means for you:
Whether Milnes is over or underpaid should not be a deciding factor whether or not you invest in IKE. 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 IKE is placed financially. If you have not done so already, I urge you to complete your research by taking a look at the following:
Governance: To find out more about IKE’s governance, look through our infographic report of the company’s board and management.
Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of IKE? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
