What has been the trend in GBZ’s earnings?Profitability of a company is a strong indication of GBZ’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Thompson’s performance. Over the last year GBZ delivered negative earnings of -AU$897.36K , compared to the previous year’s positive earnings. However, on average, GBZ has been loss-making in the past, with a 5-year average EPS of -AU$0.0063. In the situation of negative earnings, the company may be facing a period of reinvestment and growth, or it can be a sign of some headwind. Regardless, CEO compensation should mirror the current condition of the business. From the latest financial statments, Thompson’s total remuneration remained stable at AU$235.42K since the previous year.
Is GBZ’s CEO overpaid relative to the market?
Despite the fact that there is no cookie-cutter approach, as compensation should account for specific factors of the company and market, we can evaluate a high-level benchmark to see if GBZ deviates substantially from its peers. This exercise helps investors ask the right question about Thompson’s incentive alignment. Normally, an Australian small-cap is worth around $140M, creates earnings of $10M, and remunerates its CEO at roughly $500,000 per annum. Normally I’d use market cap and profit as factors determining performance, however, GBZ’s negative earnings reduces the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Thompson is paid aptly compared to those in similar-sized companies. Overall, even though GBZ is unprofitable, it seems like the CEO’s pay is reflective of the appropriate level.
My conclusion is that Thompson is not being overpaid. But your role as a shareholder should not end here. As above, this is a relatively simplistic calculation using high-level benchmarket. Proactive shareholders should question their representatives (i.e. the board of directors) how they think about the CEO’s incentive alignment with shareholders and how they balance this with retention and reward. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
- Governance: To find out more about GBZ’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 GBZ? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!