Is Real Estate Investar Group Limited’s (ASX:REV) CEO Paid Enough To Stay Motivated?

Clint Greaves is the CEO of Real Estate Investar Group Limited (ASX:REV), which has recently grown to a market capitalization of AU$3.03M. 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 Greaves’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. View our latest analysis for Real Estate Investar Group

What has REV’s performance been like?

Earnings is a powerful indication of REV’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Greaves’s performance in the past year. Most recently, REV delivered negative earnings of -AU$2.44M , which is a further decline from prior year’s loss of -AU$1.90M. Furthermore, on average, REV has been loss-making in the past, with a 5-year average EPS of -AU$0.024. In the situation of negative earnings, the company may be incurring a period of reinvestment and growth, or it can be a signal of some headwind. In any event, CEO compensation should echo the current state of the business. From the latest report, Greaves’s total compensation grew by 8.06% to AU$295.52K. Although I couldn’t find information on the composition of Greaves’s pay, if some portion were non-cash items such as stocks and options, then fluxes in REV’s share price can impact the real level of what the CEO actually takes home at the end of the day.
ASX:REV Income Statement May 2nd 18
ASX:REV Income Statement May 2nd 18

What’s a reasonable CEO compensation?

While one size does not fit all, as remuneration should account for specific factors of the company and market, we can evaluate a high-level yardstick to see if REV is an outlier. This exercise can help direct shareholders to ask the right question about Greaves’s incentive alignment. Normally, an Australian small-cap is worth around $140M, generates earnings of $10M, and remunerates its CEO at roughly $500,000 annually. Normally I’d use market cap and profit as factors determining performance, however, REV’s negative earnings lower the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Greaves is remunerated sensibly relative to peers. Putting everything together, although REV is loss-making, it seems like the CEO’s pay is sound.

Next Steps:

Hopefully this article has given you insight on how shareholders should think about REV’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 REV’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 REV? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!