Yahoo Finance Does GrainCorp Limited’s (ASX:GNC) CEO Salary Reflect Performance?
Leading GrainCorp Limited (ASX:GNC) as the CEO, Mark Palmquist took the company to a valuation of AU$1.66b. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. 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 Palmquist’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 GrainCorp
What has GNC’s performance been like?
Profitability of a company is a strong indication of GNC’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Palmquist’s performance. Most recently, GNC released a profit of AU$71.30m , which is a rather significant decline from its prior year’s profit (excluding extraordinary items) of AU$100.50m. However, GNC has strived to maintain a good track record of profitability, given its average EPS of AU$0.49 over the past couple of years. During times of fall in profits, the company may be incurring a period of reinvestment and growth, or it can be an indication of some headwind. In any case, CEO compensation should echo the current state of the business. In the latest financial statments, Palmquist’s total remuneration rose by 29.28% to AU$3.42m. Furthermore, Palmquist’s pay is also made up of 13.56% non-cash elements, which means that fluxes in GNC’s share price can impact the actual level of what the CEO actually takes home at the end of the day.
What’s a reasonable CEO compensation?
Despite the fact that there is no cookie-cutter approach, since remuneration should account for specific factors of the company and market, we can fashion a high-level yardstick to see if GNC deviates substantially from its peers. This exercise helps investors ask the right question about Palmquist’s incentive alignment. Generally, an Australian mid-cap is worth around $1.7B, produces earnings of $95M and remunerates its CEO at roughly $1.5M annually. Taking into account the size of GNC in terms of market cap, as well as its performance, using earnings as a proxy, it appears that Palmquist is remunerated more than other Australian CEOs of profitable mid-caps. Although this is simply a rudimentary estimate, investors should be cognizant of this expense.
What this means for you:
Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in GNC, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. 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 GNC’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 GNC? 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
