Is Invigor Group Limited’s (ASX:IVO) CEO Pay Fair?

Gary Cohen took the reins as CEO of Invigor Group Limited’s (ASX:IVO) and grew market cap to AU$8.76M 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. I will break down Cohen’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 Invigor Group

What has IVO’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. Over the last year IVO released negative earnings of -AU$13.15M , which is a further decline from prior year’s loss of -AU$6.77M. Additionally, on average, IVO has been loss-making in the past, with a 5-year average EPS of -AU$0.037. In the situation of negative earnings, the company may be incurring a period of reinvestment and growth, or it can be an indication of some headwind. In any case, CEO compensation should represent the current state of the business. In the most recent financial report, Cohen’s total remuneration remained stable at AU$399.56K since the previous year.
ASX:IVO Income Statement Apr 14th 18
ASX:IVO Income Statement Apr 14th 18

Is IVO overpaying the CEO?

Despite the fact that one size does not fit all, as remuneration should account for specific factors of the company and market, we can determine a high-level base line to see if IVO is an outlier. This outcome helps investors ask the right question about Cohen’s incentive alignment. Typically, an Australian small-cap has a value of $140M, generates earnings of $10M, and pays its CEO circa $500,000 per year. Normally I’d use market cap and profit as factors determining performance, however, IVO’s negative earnings reduces the effectiveness of this method. Given the range of pay for small-cap executives, it seems like Cohen is being paid within the bounds of reasonableness. Overall, though IVO is loss-making, it seems like the CEO’s pay is reflective of the appropriate level.

Next Steps:

Hopefully this article has given you insight on how shareholders should think about IVO’s governance policies such as CEO pay. As an investor, you have the right to understand how the board thinks about management incentives, and also the right to vote for and against substantial CEO pay changes. Governance is a big factor in investing, and I encourage you to dig deeper into those that represent your voice on the board. 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 IVO’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 IVO? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!