Should You Worry About Property Connect Holdings Limited’s (ASX:PCH) CEO Pay?

Tim Manson took the reins as CEO of Property Connect Holdings Limited’s (ASX:PCH) and grew market cap to AU$3.61M recently. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. 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 Manson’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. See our latest analysis for Property Connect Holdings

What has been the trend in PCH’s earnings?

PCH can create value to shareholders by increasing its profitability, which in turn is reflected into the share price and the investor’s ability to sell their shares at higher capital gains. Over the last year PCH released negative earnings of -AU$2.29M , which is a further decline from prior year’s loss of -AU$1.99M. Furthermore, on average, PCH has been loss-making in the past, with a 5-year average EPS of -AU$0.15. In the situation of unprofitability the company may be facing a period of reinvestment and growth, or it can be a signal of some headwind. Regardless, CEO compensation should echo the current condition of the business. From the latest report, Manson’s total compensation grew by 40.17% to AU$231.01K. Although I couldn’t find information on the breakdown of Manson’s pay, if some portion were non-cash items such as stocks and options, then fluctuations in PCH’s share price can impact the true level of what the CEO actually collects at the end of the year.
ASX:PCH Income Statement Apr 20th 18
ASX:PCH Income Statement Apr 20th 18

Is PCH overpaying the CEO?

Even though no standard benchmark exists, since remuneration should be tailored to the specific company and market, we can evaluate a high-level base line to see if PCH deviates substantially from its peers. This exercise can help direct shareholders to ask the right question about Manson’s incentive alignment. Typically, an Australian small-cap is worth around $140M, produces earnings of $10M, and pays its CEO circa $500,000 per year. Typically I would look at market cap and earnings as a proxy for performance, however, PCH’s negative earnings lower the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Manson is being paid within the bounds of reasonableness. Overall, though PCH is loss-making, it seems like the CEO’s pay is fair.

Next Steps:

Hopefully this article has given you insight on how shareholders should think about PCH’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 urge you to complete your research by taking a look at the following:

  1. Governance: To find out more about PCH’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 PCH? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!