Should You Worry About N1 Holdings Limited's (ASX:N1H) CEO Salary Level?

Leading N1 Holdings Limited (ASX:N1H) as the CEO, Ren Hor Wong took the company to a valuation of AU$9.79M. 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. I will break down Wong’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. Check out our latest analysis for N1 Holdings

What has been the trend in N1H's earnings?

Profitability of a company is a strong indication of N1H's ability to generate returns on shareholders' funds through corporate activities. In this exercise, I will use profits as a proxy for Wong's performance. Over the last year N1H produced negative earnings of -AU$1.48M , which is a further decline from prior year's loss of -AU$1.31M. Furthermore, on average, N1H has been loss-making in the past, with a 5-year average EPS of -AU$0.022. In the situation of negative earnings, the company may be incurring a period of reinvestment and growth, or it can be an indication of some headwind. In any event, CEO compensation should emulate the current condition of the business. In the latest financial report, Wong's total remuneration increased over two-fold, reaching AU$386.40K .

Is N1H overpaying the CEO?

Despite the fact that one size does not fit all, since compensation should be tailored to the specific company and market, we can gauge a high-level thresold to see if N1H is an outlier. This exercise helps investors ask the right question about Wong’s incentive alignment. Normally, an Australian small-cap has a value of $140M, generates earnings of $10M, and pays its CEO at roughly $500,000 per year. Normally I would use earnings and market cap to account for variations in performance, however, N1H's negative earnings reduces the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Wong is being paid within the bounds of reasonableness. Putting everything together, though N1H is loss-making, it seems like the CEO’s pay is sound.

Next Steps:

CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Is Wong remunerated appropriately based on other factors we have not covered today? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours. If you have not done so already, I urge you to complete your research by taking a look at the following:

1. Governance: To find out more about N1H's governance, look through our infographic report of the company's board and management.
2. 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.
3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of N1H? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.