Here's Why PharmAust Limited's (ASX:PAA) CEO Compensation Is The Least Of Shareholders Concerns

Performance at PharmAust Limited (ASX:PAA) has been rather uninspiring recently and shareholders may be wondering how CEO Roger Aston plans to fix this. They will get a chance to exercise their voting power to influence the future direction of the company in the next AGM on 10 November 2022. It has been shown that setting appropriate executive remuneration incentivises the management to act in the interests of shareholders. We think CEO compensation looks appropriate given the data we have put together.

Our analysis indicates that PAA is potentially overvalued!

How Does Total Compensation For Roger Aston Compare With Other Companies In The Industry?

According to our data, PharmAust Limited has a market capitalization of AU$24m, and paid its CEO total annual compensation worth AU$286k over the year to June 2022. That's mostly flat as compared to the prior year's compensation. In particular, the salary of AU$260.0k, makes up a huge portion of the total compensation being paid to the CEO.

For comparison, other companies in the industry with market capitalizations below AU$312m, reported a median total CEO compensation of AU$589k. In other words, PharmAust pays its CEO lower than the industry median. Moreover, Roger Aston also holds AU$1.1m worth of PharmAust stock directly under their own name, which reveals to us that they have a significant personal stake in the company.

Component	2022	2021	Proportion (2022)
Salary	AU$260k	AU$260k	91%
Other	AU$26k	AU$25k	9%
Total Compensation	AU$286k	AU$285k	100%

Talking in terms of the industry, salary represented approximately 67% of total compensation out of all the companies we analyzed, while other remuneration made up 33% of the pie. It's interesting to note that PharmAust pays out a greater portion of remuneration through salary, compared to the industry. If total compensation veers towards salary, it suggests that the variable portion - which is generally tied to performance, is lower.

PharmAust Limited's Growth

PharmAust Limited has seen its earnings per share (EPS) increase by 11% a year over the past three years. It achieved revenue growth of 23% over the last year.

Shareholders would be glad to know that the company has improved itself over the last few years. It's a real positive to see this sort of revenue growth in a single year. That suggests a healthy and growing business. We don't have analyst forecasts, but you could get a better understanding of its growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

Has PharmAust Limited Been A Good Investment?

The return of -31% over three years would not have pleased PharmAust Limited shareholders. This suggests it would be unwise for the company to pay the CEO too generously.

To Conclude...

The fact that shareholders have earned a negative share price return is certainly disconcerting. The share price trend has diverged with the robust growth in EPS however, suggesting there may be other factors that could be driving the price performance. A key focus for the board and management will be how to align the share price with fundamentals. In the upcoming AGM, shareholders will get the opportunity to discuss these concerns with the board and assess if the board's plan is likely to improve company performance.

CEO compensation can have a massive impact on performance, but it's just one element. We've identified 2 warning signs for PharmAust that investors should be aware of in a dynamic business environment.

Arguably, business quality is much more important than CEO compensation levels. So check out this free list of interesting companies that have HIGH return on equity 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.