This Is Why Nanosonics Limited's (ASX:NAN) CEO Compensation Looks Appropriate

Performance at Nanosonics Limited (ASX:NAN) has been rather uninspiring recently and shareholders may be wondering how CEO Michael Kavanagh plans to fix this. At the next AGM coming up on 18 November 2022, they can influence managerial decision making through voting on resolutions, including executive remuneration. It has been shown that setting appropriate executive remuneration incentivises the management to act in the interests of shareholders. We have prepared some analysis below to show that CEO compensation looks to be reasonable.

Our analysis indicates that NAN is potentially overvalued!

Comparing Nanosonics Limited's CEO Compensation With The Industry

According to our data, Nanosonics Limited has a market capitalization of AU$1.3b, and paid its CEO total annual compensation worth AU$1.4m over the year to June 2022. This means that the compensation hasn't changed much from last year. While this analysis focuses on total compensation, it's worth acknowledging that the salary portion is lower, valued at AU$703k.

In comparison with other companies in the industry with market capitalizations ranging from AU$620m to AU$2.5b, the reported median CEO total compensation was AU$2.5m. In other words, Nanosonics pays its CEO lower than the industry median. Moreover, Michael Kavanagh also holds AU$5.4m worth of Nanosonics stock directly under their own name, which reveals to us that they have a significant personal stake in the company.

Component	2022	2021	Proportion (2022)
Salary	AU$703k	AU$642k	49%
Other	AU$728k	AU$781k	51%
Total Compensation	AU$1.4m	AU$1.4m	100%

Talking in terms of the industry, salary represented approximately 61% of total compensation out of all the companies we analyzed, while other remuneration made up 39% of the pie. In Nanosonics' case, non-salary compensation represents a greater slice of total remuneration, in comparison to the broader industry. It's important to note that a slant towards non-salary compensation suggests that total pay is tied to the company's performance.

Nanosonics Limited's Growth

Over the last three years, Nanosonics Limited has shrunk its earnings per share by 35% per year. It achieved revenue growth of 17% over the last year.

The decrease in EPS could be a concern for some investors. But on the other hand, revenue growth is strong, suggesting a brighter future. These two metrics are moving in different directions, so while it's hard to be confident judging performance, we think the stock is worth watching. 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 Nanosonics Limited Been A Good Investment?

The return of -41% over three years would not have pleased Nanosonics Limited shareholders. So shareholders would probably want the company to be less generous with CEO compensation.

In Summary...

The fact that shareholders are sitting on a loss is certainly disheartening. The poor performance of the share price might have something to do with the lack of earnings growth. The upcoming AGM will provide shareholders the opportunity to raise their concerns and evaluate if the board’s judgement and decision-making is aligned with their expectations.

While it is important to pay attention to CEO remuneration, investors should also consider other elements of the business. That's why we did some digging and identified 2 warning signs for Nanosonics that you should be aware of before investing.

Of course, you might find a fantastic investment by looking at a different set of stocks. So take a peek at this free list of interesting companies.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.