This article will reflect on the compensation paid to Brad O'Connor who has served as CEO of Cogstate Limited (ASX:CGS) since 2005. This analysis will also evaluate the appropriateness of CEO compensation when taking into account the earnings and shareholder returns of the company.
See our latest analysis for Cogstate
How Does Total Compensation For Brad O'Connor Compare With Other Companies In The Industry?
According to our data, Cogstate Limited has a market capitalization of AU$179m, and paid its CEO total annual compensation worth US$931k over the year to June 2020. That's a notable increase of 42% on last year. We think total compensation is more important but our data shows that the CEO salary is lower, at US$371k.
On comparing similar-sized companies in the industry with market capitalizations below AU$259m, we found that the median total CEO compensation was US$354k. This suggests that Brad O'Connor is paid more than the median for the industry. What's more, Brad O'Connor holds AU$6.2m worth of shares in the company in their own name, indicating that they have a lot of skin in the game.
| Component | 2020 | 2019 | Proportion (2020) |
| Salary | US$371k | US$368k | 40% |
| Other | US$559k | US$287k | 60% |
| Total Compensation | US$931k | US$655k | 100% |
Talking in terms of the industry, salary represented approximately 70% of total compensation out of all the companies we analyzed, while other remuneration made up 30% of the pie. Cogstate sets aside a smaller share of compensation for salary, in comparison to the overall industry. It's important to note that a slant towards non-salary compensation suggests that total pay is tied to the company's performance.
Cogstate Limited's Growth
Over the last three years, Cogstate Limited has shrunk its earnings per share by 8.2% per year. Its revenue is up 8.5% over the last year.
The decline in EPS is a bit concerning. The modest increase in revenue in the last year isn't enough to make us overlook the disappointing change in EPS. So given this relatively weak performance, shareholders would probably not want to see high compensation for the CEO. While we don't have analyst forecasts for the company, shareholders might want to examine this detailed historical graph of earnings, revenue and cash flow.
Has Cogstate Limited Been A Good Investment?
With a total shareholder return of 12% over three years, Cogstate Limited shareholders would, in general, be reasonably content. But they probably wouldn't be so happy as to think the CEO should be paid more than is normal, for companies around this size.
In Summary...
As previously discussed, Brad is compensated more than what is normal for CEOs of companies of similar size, and which belong to the same industry. This doesn't look great when you realize that the company has been suffering from negative EPS growth for the last three years. And while shareholder returns have been respectable, they have hardly been superb. So you may want to delve deeper, because we don't think the amount Brad makes is justifiable.
CEO compensation is an important area to keep your eyes on, but we've also need to pay attention to other attributes of the company. We did our research and identified 2 warning signs (and 1 which is potentially serious) in Cogstate we think you should know about.
Important note: Cogstate 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.
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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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About ASX:CGS
Cogstate
A neuroscience technology company, engages in the creation, validation, and commercialization of digital brain health assessments used in both academic and industry sponsored research.
Flawless balance sheet and undervalued.
