Here's Why We Think Estia Health Limited's (ASX:EHE) CEO Compensation Looks Fair

Simply Wall St
November 04, 2021
Source: Shutterstock

Shareholders may be wondering what CEO Ian Thorley plans to do to improve the less than great performance at Estia Health Limited (ASX:EHE) recently. At the next AGM coming up on 11 November 2021, they can influence managerial decision making through voting on resolutions, including executive remuneration. Setting appropriate executive remuneration to align with the interests of shareholders may also be a way to influence the company performance in the long run. We have prepared some analysis below to show that CEO compensation looks to be reasonable.

See our latest analysis for Estia Health

Comparing Estia Health Limited's CEO Compensation With the industry

Our data indicates that Estia Health Limited has a market capitalization of AU$544m, and total annual CEO compensation was reported as AU$918k for the year to June 2021. We note that's an increase of 22% above last year. In particular, the salary of AU$698.3k, makes up a huge portion of the total compensation being paid to the CEO.

For comparison, other companies in the same industry with market capitalizations ranging between AU$269m and AU$1.1b had a median total CEO compensation of AU$1.5m. Accordingly, Estia Health pays its CEO under the industry median. Furthermore, Ian Thorley directly owns AU$287k worth of shares in the company.

Component20212020Proportion (2021)
Salary AU$698k AU$699k 76%
Other AU$219k AU$53k 24%
Total CompensationAU$918k AU$752k100%

Talking in terms of the industry, salary represented approximately 58% of total compensation out of all the companies we analyzed, while other remuneration made up 42% of the pie. According to our research, Estia Health has allocated a higher percentage of pay to salary in comparison to the wider industry. If salary dominates total compensation, it suggests that CEO compensation is leaning less towards the variable component, which is usually linked with performance.

ASX:EHE CEO Compensation November 4th 2021

A Look at Estia Health Limited's Growth Numbers

Estia Health Limited has reduced its earnings per share by 47% a year over the last three years. It achieved revenue growth of 1.5% 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. These factors suggest that the business performance wouldn't really justify a high pay packet for the CEO. Moving away from current form for a second, it could be important to check this free visual depiction of what analysts expect for the future.

Has Estia Health Limited Been A Good Investment?

Estia Health Limited has not done too badly by shareholders, with a total return of 1.8%, over three years. It would be nice to see that metric improve in the future. Accordingly, a proposal to increase CEO remuneration without seeing an improvement in shareholder returns might not be met favorably by most shareholders.

To Conclude...

Despite the positive returns on shareholders' investments, the fact that earnings have failed to grow makes us skeptical about the stock keeping up its current momentum. These concerns could be addressed to the board and shareholders should revisit their investment thesis to see if it still makes sense.

CEO compensation can have a massive impact on performance, but it's just one element. That's why we did some digging and identified 1 warning sign for Estia Health that investors should think about before committing capital to this stock.

Important note: Estia Health 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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