Yahoo Finance Does IDP Education Limited’s (ASX:IEL) CEO Pay Matter?
Leading IDP Education Limited (ASX:IEL) as the CEO, Andrew Barkla took the company to a valuation of AU$2.68b. 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 Barkla’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.
View our latest analysis for IDP Education
Did Barkla create value?
Profitability of a company is a strong indication of IEL’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Barkla’s performance. Over the last year IEL delivered an earnings of AU$51.5m , which is an increase of 24.1% from its prior year’s earnings of AU$41.5m. This is an encouraging signal that IEL aims to sustain a strong track record of generating profits regardless of the challenges. Since earnings are heading towards the right direction, CEO pay should mirror Barkla’s hard work. In the same year, Barkla’s total compensation grew by a mere 2.6% to AU$2.5m. Moreover, Barkla’s pay is also made up of 44.56% non-cash elements, which means that fluxes in IEL’s share price can affect the real level of what the CEO actually takes home at the end of the day.
What’s a reasonable CEO compensation?
Despite the fact that 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 IEL is an outlier. This exercise can help shareholders ask the right question about Barkla’s incentive alignment. Normally, an Australian mid-cap is worth around $1.7B, produces earnings of $95M and remunerates its CEO at roughly $1.5M annually. Accounting for IEL’s size and performance, in terms of market cap and earnings, it seems that Barkla is compensated more than other Australian CEOs of mid-caps, on average. Although this is merely a basic estimate, investors should be aware of this expense.
What this means for you:
In the upcoming year’s AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose another executive pay raise. Although this analysis is relatively simplified, the fact that Barkla’s pay is above its peer group should raise questions as to why this may be the case. 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 IEL’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 IEL? 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.
