Did Moalem create value?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. In the past year, SAS delivered negative earnings of -AU$15.25M , which is a further decline from prior year’s loss of -AU$12.39M. Additionally, on average, SAS has been loss-making in the past, with a 5-year average EPS of -AU$0.015. In the situation of negative earnings, the company may be facing a period of reinvestment and growth, or it can be an indication of some headwind. In any case, CEO compensation should mirror the current state of the business. In the most recent financial report, Moalem’s total compensation increased over two-fold, reaching AU$3.20M . In addition to this, Moalem’s pay is also made up of 43.83% non-cash elements, which means that fluctuations in SAS’s share price can move the actual level of what the CEO actually takes home at the end of the day.
Is SAS’s CEO overpaid relative to the market?
While no standard benchmark exists, as compensation should be tailored to the specific company and market, we can estimate a high-level base line to see if SAS deviates substantially from its peers. This outcome can help shareholders ask the right question about Moalem’s incentive alignment. Generally, an Australian small-cap is worth around $140M, creates earnings of $10M, and remunerates its CEO at roughly $500,000 per annum. Typically I’d use market cap and profit as factors determining performance, however, SAS’s negative earnings reduces the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Moalem’s pay is above other similar companies.
What this means for you:
Whether Moalem is over or underpaid should not be a deciding factor whether or not you invest in SAS. However, the way the company is governed and policies, such as remuneration, are structured, are important considerations for an investor. The best place to start is to understand how well SAS is placed financially. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
- Governance: To find out more about SAS’s governance, look through our infographic report of the company’s board and management.
- 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.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of SAS? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!