This Is Why Kip McGrath Education Centres Limited's (ASX:KME) CEO Compensation Looks Appropriate

The share price of Kip McGrath Education Centres Limited (ASX:KME) has increased significantly over the past few years. However, the earnings growth has not kept up with the share price momentum, suggesting that some other factors may be driving the price direction. These concerns will be at the front of shareholders' minds as they go into the AGM coming up on 16 November 2021. One way that shareholders can influence managerial decisions is through voting on CEO and executive remuneration packages, which studies show could impact company performance. In our analysis below, we show why shareholders may consider holding off a raise for the CEO's compensation until company performance improves.

See our latest analysis for Kip McGrath Education Centres

Comparing Kip McGrath Education Centres Limited's CEO Compensation With the industry

According to our data, Kip McGrath Education Centres Limited has a market capitalization of AU$52m, and paid its CEO total annual compensation worth AU$520k over the year to June 2021. We note that's an increase of 14% above last year. In particular, the salary of AU$467.3k, makes up a huge portion of the total compensation being paid to the CEO.

For comparison, other companies in the industry with market capitalizations below AU$269m, reported a median total CEO compensation of AU$561k. So it looks like Kip McGrath Education Centres compensates Storm McGrath in line with the median for the industry. Furthermore, Storm McGrath directly owns AU$2.9m worth of shares in the company, implying that they are deeply invested in the company's success.

Component	2021	2020	Proportion (2021)
Salary	AU$467k	AU$383k	90%
Other	AU$52k	AU$72k	10%
Total Compensation	AU$520k	AU$455k	100%

On an industry level, roughly 60% of total compensation represents salary and 40% is other remuneration. It's interesting to note that Kip McGrath Education Centres pays out a greater portion of remuneration through salary, compared to the industry. If salary is the major component in total compensation, it suggests that the CEO receives a higher fixed proportion of the total compensation, regardless of performance.

Kip McGrath Education Centres Limited's Growth

Over the last three years, Kip McGrath Education Centres Limited has shrunk its earnings per share by 13% per year. In the last year, its revenue is up 13%.

The decline in EPS is a bit concerning. While the revenue growth is good to see, it is outweighed by the fact that EPS are down, over three years. It's hard to argue the company is firing on all cylinders, so shareholders might be averse to high CEO remuneration. Although we don't have analyst forecasts, you might want to assess this data-rich visualization of earnings, revenue and cash flow.

Has Kip McGrath Education Centres Limited Been A Good Investment?

Most shareholders would probably be pleased with Kip McGrath Education Centres Limited for providing a total return of 44% over three years. This strong performance might mean some shareholders don't mind if the CEO were to be paid more than is normal for a company of its size.

In Summary...

While the return to shareholders does look promising, it's hard to ignore the lack of earnings growth and this makes us question whether these strong returns will continue. Shareholders should make the most of the coming opportunity to question the board on key concerns they may have and revisit their investment thesis with regards to the company.

CEO compensation can have a massive impact on performance, but it's just one element. That's why we did some digging and identified 2 warning signs for Kip McGrath Education Centres that investors should think about before committing capital to this stock.

Important note: Kip McGrath Education Centres is an exciting stock, but we understand investors may be looking for an unencumbered balance sheet and blockbuster returns. You might find something better in this list of interesting companies with high ROE and low debt.

This article by Simply Wall St 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. Simply Wall St has no position in any stocks mentioned.

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