What has PWN’s performance been like?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, PWN released negative earnings of -AU$720.40K . However, this is an improvement on prior year’s loss of -AU$1.13M, which may signal a turnaround since PWN has been loss-making for the past five years, on average, with an EPS of -AU$0.022. Since earnings are heading towards the right direction, CEO pay should represent McManus’s valued-adding activities. In the same year, McManus’s total compensation dropped by more than half of the prior year’s level, to AU$275.00K. In addition to this, McManus’s pay is also made up of 72.73% non-cash elements, which means that variabilities in PWN’s share price can move the real level of what the CEO actually takes home at the end of the day.
Is PWN’s CEO overpaid relative to the market?
Even though there is no cookie-cutter approach, as remuneration should be tailored to the specific company and market, we can determine a high-level base line to see if PWN is an outlier. This exercise helps investors ask the right question about McManus’s incentive alignment. Generally, an Australian small-cap is worth around $140M, creates earnings of $10M, and remunerates its CEO circa $500,000 annually. Normally I would use earnings and market cap to account for variations in performance, however, PWN’s negative earnings reduces the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like McManus is being paid within the bounds of reasonableness. On the whole, though PWN is unprofitable, it seems like the CEO’s pay is reflective of the appropriate level.
Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in PWN, 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 PWN’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 PWN? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!