Should You Worry About Greenpower Energy Limited's (ASX:GPP) CEO Pay Check?

Gerry King took the reins as CEO of Greenpower Energy Limited's (ASX:GPP) and grew market cap to AU$10.91M recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. 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 King’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 Greenpower Energy

What has GPP's performance been like?

Earnings is a powerful indication of GPP's ability to invest shareholders' funds and generate returns. Therefore I will use earnings as a proxy of King's performance in the past year. Recently, GPP released negative earnings of -AU$3.54M , which is a further decline from prior year's loss of -AU$2.85M. Additionally, on average, GPP has been loss-making in the past, with a 5-year average EPS of -AU$0.016. In the situation of unprofitability the company may be incurring a period of reinvestment and growth, or it can be a signal of some headwind. In any case, CEO compensation should mirror the current condition of the business. From the latest financial report, King's total remuneration grew by 14.02% to AU$136.82K.

Is GPP overpaying the CEO?

While there is no cookie-cutter approach, since compensation should be tailored to the specific company and market, we can estimate a high-level benchmark to see if GPP deviates substantially from its peers. This outcome can help direct shareholders to ask the right question about King’s incentive alignment. Normally, an Australian small-cap is worth around $140M, produces earnings of $10M, and pays its CEO at roughly $500,000 annually. Normally I would use earnings and market cap to account for variations in performance, however, GPP's negative earnings reduces the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like King is paid aptly compared to those in similar-sized companies. On the whole, though GPP is loss-making, it seems like the CEO’s pay is appropriate.

Next Steps:

Board members are the voice of shareholders. Although CEO pay doesn't necessarily make a big dent in your investment thesis in GPP, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

1. Governance: To find out more about GPP'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 GPP? 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.