Is Reach Subsea ASA’s (OB:REACH) CEO Salary Justified?

Jostein Alendal has been the CEO of Reach Subsea ASA (OB:REACH) since 2014. This report will, first, examine the CEO compensation levels in comparison to CEO compensation at companies of similar size. After that, we will consider the growth in the business. And finally – as a second measure of performance – we will look at the returns shareholders have received over the last few years. This process should give us an idea about how appropriately the CEO is paid.

See our latest analysis for Reach Subsea

How Does Jostein Alendal’s Compensation Compare With Similar Sized Companies?

At the time of writing, our data says that Reach Subsea ASA has a market cap of kr215m, and reported total annual CEO compensation of kr1.6m for the year to December 2018. While we always look at total compensation first, we note that the salary component is less, at kr1.5m. We took a group of companies with market capitalizations below kr1.8b, and calculated the median CEO total compensation to be kr3.7m.

A first glance this seems like a real positive for shareholders, since Jostein Alendal is paid less than the average total compensation paid by similar sized companies. However, before we heap on the praise, we should delve deeper to understand business performance.

You can see, below, how CEO compensation at Reach Subsea has changed over time.

OB:REACH CEO Compensation, January 9th 2020
OB:REACH CEO Compensation, January 9th 2020

Is Reach Subsea ASA Growing?

Over the last three years Reach Subsea ASA has grown its earnings per share (EPS) by an average of 37% per year (using a line of best fit). Revenue was pretty flat on last year.

This demonstrates that the company has been improving recently. A good result. The lack of revenue growth isn’t ideal, but it is the bottom line that counts most in business. We don’t have analyst forecasts, but you might want to assess this data-rich visualization of earnings, revenue and cash flow.

Has Reach Subsea ASA Been A Good Investment?

With a three year total loss of 16%, Reach Subsea ASA would certainly have some dissatisfied shareholders. This suggests it would be unwise for the company to pay the CEO too generously.

In Summary…

It looks like Reach Subsea ASA pays its CEO less than similar sized companies.

Many would consider this to indicate that the pay is modest since the business is growing. Few would deny that the total shareholder return over the last three years could have been a lot better. So while we would not say that Jostein Alendal is generously paid, it would be good to see an improvement in business performance before too an increase in pay. When I see fairly low remuneration, combined with earnings per share growth, but without big share price gains, it makes me want to research the potential for future gains. So you may want to check if insiders are buying Reach Subsea shares with their own money (free access).

Arguably, business quality is much more important than CEO compensation levels. So check out this free list of interesting companies, that have HIGH return on equity and low debt.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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