How Should Investors React To Australian Finance Group's (ASX:AFG) CEO Pay?

Simply Wall St
September 25, 2020

David Bailey became the CEO of Australian Finance Group Limited (ASX:AFG) in 2017, and we think it's a good time to look at the executive's compensation against the backdrop of overall company performance. This analysis will also evaluate the appropriateness of CEO compensation when taking into account the earnings and shareholder returns of the company.

View our latest analysis for Australian Finance Group

How Does Total Compensation For David Bailey Compare With Other Companies In The Industry?

Our data indicates that Australian Finance Group Limited has a market capitalization of AU$526m, and total annual CEO compensation was reported as AU$1.2m for the year to June 2020. Notably, that's an increase of 14% over the year before. While this analysis focuses on total compensation, it's worth acknowledging that the salary portion is lower, valued at AU$551k.

On examining similar-sized companies in the industry with market capitalizations between AU$285m and AU$1.1b, we discovered that the median CEO total compensation of that group was AU$1.5m. This suggests that Australian Finance Group remunerates its CEO largely in line with the industry average. Moreover, David Bailey also holds AU$2.1m worth of Australian Finance Group stock directly under their own name, which reveals to us that they have a significant personal stake in the company.

Component20202019Proportion (2020)
Salary AU$551k AU$540k 47%
Other AU$629k AU$491k 53%
Total CompensationAU$1.2m AU$1.0m100%

Speaking on an industry level, nearly 79% of total compensation represents salary, while the remainder of 21% is other remuneration. It's interesting to note that Australian Finance Group allocates a smaller portion of compensation to salary in comparison to the broader industry. If non-salary compensation dominates total pay, it's an indicator that the executive's salary is tied to company performance.

ASX:AFG CEO Compensation September 25th 2020

Australian Finance Group Limited's Growth

Over the last three years, Australian Finance Group Limited has shrunk its earnings per share by 1.6% per year. In the last year, its revenue is up 6.1%.

Its a bit disappointing to see that the company has failed to grow its EPS. The modest increase in revenue in the last year isn't enough to make us overlook the disappointing change in EPS. It's hard to argue the company is firing on all cylinders, so shareholders might be averse to high CEO remuneration. Moving away from current form for a second, it could be important to check this free visual depiction of what analysts expect for the future.

Has Australian Finance Group Limited Been A Good Investment?

Most shareholders would probably be pleased with Australian Finance Group Limited for providing a total return of 50% over three years. So they may not be at all concerned if the CEO were to be paid more than is normal for companies around the same size.

In Summary...

As we noted earlier, Australian Finance Group pays its CEO in line with similar-sized companies belonging to the same industry. This isn't great when you look at it against the backdrop of EPS growth, which has been negative for the past three years. But on the bright side, shareholder returns have moved northward during the same period. We're not saying CEO compensation is too generous, but shareholders will probably want to see an increase in EPS before agreeing the business should pay any more.

While CEO pay is an important factor to be aware of, there are other areas that investors should be mindful of as well. We did our research and spotted 2 warning signs for Australian Finance Group that investors should look into moving forward.

Switching gears from Australian Finance Group, if you're hunting for a pristine balance sheet and premium returns, this free list of high return, low debt companies is a great place to look.

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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