Here's Why Shareholders May Want To Be Cautious With Increasing Pact Group Holdings Ltd's (ASX:PGH) CEO Pay Packet

Shareholders of Pact Group Holdings Ltd (ASX:PGH) will have been dismayed by the negative share price return over the last three years. What is concerning is that despite positive EPS growth, the share price has not tracked the trend in fundamentals. The AGM coming up on the 16 November 2022 could be an opportunity for shareholders to bring these concerns to the board's attention. Voting on resolutions such as executive remuneration and other matters could also be a way to influence management. Here's our take on why we think shareholders may want to be cautious of approving a raise for the CEO at the moment.

Our analysis indicates that PGH is potentially undervalued!

Comparing Pact Group Holdings Ltd's CEO Compensation With The Industry

At the time of writing, our data shows that Pact Group Holdings Ltd has a market capitalization of AU$475m, and reported total annual CEO compensation of AU$2.0m for the year to June 2022. Notably, that's a decrease of 34% over the year before. We note that the salary portion, which stands at AU$1.25m constitutes the majority of total compensation received by the CEO.

On examining similar-sized companies in the industry with market capitalizations between AU$306m and AU$1.2b, we discovered that the median CEO total compensation of that group was AU$772k. This suggests that Sanjay Dayal is paid more than the median for the industry.

Component	2022	2021	Proportion (2022)
Salary	AU$1.3m	AU$1.2m	64%
Other	AU$712k	AU$1.8m	36%
Total Compensation	AU$2.0m	AU$3.0m	100%

Speaking on an industry level, nearly 64% of total compensation represents salary, while the remainder of 36% is other remuneration. There isn't a significant difference between Pact Group Holdings and the broader market, in terms of salary allocation in the overall compensation package. If salary dominates total compensation, it suggests that CEO compensation is leaning less towards the variable component, which is usually linked with performance.

A Look at Pact Group Holdings Ltd's Growth Numbers

Over the past three years, Pact Group Holdings Ltd has seen its earnings per share (EPS) grow by 56% per year. In the last year, its revenue is up 4.3%.

Shareholders would be glad to know that the company has improved itself over the last few years. It's also good to see modest revenue growth, suggesting the underlying business is healthy. Historical performance can sometimes be a good indicator on what's coming up next but if you want to peer into the company's future you might be interested in this free visualization of analyst forecasts.

Has Pact Group Holdings Ltd Been A Good Investment?

Few Pact Group Holdings Ltd shareholders would feel satisfied with the return of -40% over three years. So shareholders would probably want the company to be less generous with CEO compensation.

To Conclude...

Despite the growth in its earnings, the share price decline in the past three years is certainly concerning. A huge lag in share price growth when earnings have grown may indicate there could be other issues that are affecting the company at the moment that the market is focused on. Shareholders would be keen to know what's holding the stock back when earnings have grown. These concerns should be addressed at the upcoming AGM, where shareholders can question the board and evaluate if their judgement and decision making is still in line with their expectations.

It is always advisable to analyse CEO pay, along with performing a thorough analysis of the company's key performance areas. We identified 4 warning signs for Pact Group Holdings (1 is a bit unpleasant!) that you should be aware of before investing here.

Important note: Pact Group Holdings 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. 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.