Thomas Beregi took the reins as CEO of Credit Corp Group Limited’s (ASX:CCP) and grew market cap to AU$1.12b recently. 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. I will break down Beregi’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.
What has CCP’s performance been like?Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. In the past year, CCP produced an earnings of AU$64.3m , which is an increase of 16.6% from its last year’s earnings of AU$55.2m. This is an encouraging signal that CCP aims to sustain a strong track record of generating profits regardless of the challenges. Given earnings are moving the right way, CEO pay should mirror Beregi’s hard work. During this period Beregi’s total compensation declined by a marginal -1.4%, to AU$2.4m. In addition to this, Beregi’s pay is also made up of 42.03% non-cash elements, which means that fluxes in CCP’s share price can affect the actual level of what the CEO actually takes home at the end of the day.
Is CCP’s CEO overpaid relative to the market?Despite the fact that no standard benchmark exists, since remuneration should be tailored to the specific company and market, we can determine a high-level benchmark to see if CCP is an outlier. This exercise helps investors ask the right question about Beregi’s incentive alignment. Normally, an Australian mid-cap is worth around $1.7B, creates earnings of $95M and remunerates its CEO circa $1.5M per year. Considering the size of CCP in terms of market cap, as well as its performance, using earnings as a proxy, it seems that Beregi is compensated above other Australian CEOs of profitable mid-caps. 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 Beregi’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 CCP’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 CCP? 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 firstname.lastname@example.org.