Is Aspermont Limited's (ASX:ASP) CEO Overpaid Relative To Its Peers?

Alex Kent took the helm as Aspermont Limited's (ASX:ASP) CEO and grew market cap to AU$18.69M recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. Today we will assess Kent’s pay and compare this to the company’s performance over the same period, as well as measure it against other Australian CEOs leading companies of similar size and profitability. Check out our latest analysis for Aspermont

What has ASP's performance been like?

Earnings is a powerful indication of ASP's ability to invest shareholders' funds and generate returns. Therefore I will use earnings as a proxy of Kent's performance in the past year. Most recently, ASP delivered negative earnings of -AU$9.66M , which is a further decline from prior year's loss of -AU$5.01M. Moreover, on average, ASP has been loss-making in the past, with a 5-year average EPS of -AU$0.0046. During times of negative earnings, the company may be going through a period of reinvestment and growth, or it can be a sign of some headwind. In any case, CEO compensation should echo the current condition of the business. In the latest report, Kent's total compensation grew by 48.51% to AU$473.33K.

Is ASP overpaying the CEO?

Though there is no cookie-cutter approach, as remuneration should be tailored to the specific company and market, we can evaluate a high-level thresold to see if ASP deviates substantially from its peers. This exercise can help direct shareholders to ask the right question about Kent’s incentive alignment. Generally, an Australian small-cap has a value of $140M, creates earnings of $10M, and remunerates its CEO at roughly $500,000 per annum. Normally I would look at market cap and earnings as a proxy for performance, however, ASP's negative earnings reduces the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Kent is remunerated sensibly relative to peers. On the whole, though ASP is unprofitable, it seems like the CEO’s pay is reflective of the appropriate level.

Next Steps:

In the upcoming year's AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose an executive pay raise. Will this raise take Kent's pay beyond the bound of reasonableness, or will it help in retaining the talented executive? Being proactive in governance decisions is a key part to investing, and collectively, investors can make a big difference. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

1. Governance: To find out more about ASP's governance, look through our infographic report of the company's board and management.
2. 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.
3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of ASP? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.