Did Pickett create value?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. Recently, CAE released negative earnings of -AU$851.32K , which is a further decline from prior year’s loss of -AU$815.21K. Furthermore, on average, CAE has been loss-making in the past, with a 5-year average EPS of -AU$0.009. During times of unprofitability the company may be going through a period of reinvestment and growth, or it can be a signal of some headwind. Regardless, CEO compensation should echo the current state of the business. In the latest financial report, Pickett’s total remuneration grew by 13.46% to AU$285.76K.
Is CAE’s CEO overpaid relative to the market?
Despite the fact that there is no cookie-cutter approach, as remuneration should be tailored to the specific company and market, we can evaluate a high-level base line to see if CAE deviates substantially from its peers. This exercise can help shareholders ask the right question about Pickett’s incentive alignment. Typically, an Australian small-cap is worth around $140M, creates earnings of $10M, and remunerates its CEO circa $500,000 per year. Usually I would look at market cap and earnings as a proxy for performance, however, CAE’s negative earnings reduces the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Pickett is remunerated sensibly relative to peers. Overall, though CAE is loss-making, it seems like the CEO’s pay is appropriate.
Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in CAE, 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 urge you to complete your research by taking a look at the following:
- Governance: To find out more about CAE’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 CAE? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!