John Foster is the CEO of FIH group plc (LON:FIH), which has recently grown to a market capitalization of UK£45.63m. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. I will break down Foster’s pay and compare this to the company’s performance over the same period, as well as measure it against other UK CEOs leading companies of similar size and profitability.
Did Foster create value?Earnings is a powerful indication of FIH’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Foster’s performance in the past year. In the past year, FIH released a profit of UK£2.52m , which is an increase of 76.38% from its previous year’s earnings of UK£1.43m. This is an encouraging signal that FIH aims to sustain a strong track record of generating profits regardless of the challenges. Since earnings are heading towards the right direction, CEO pay should echo Foster’s valued-adding activities. Over the same period Foster’s total compensation declined by -13.45%, to UK£206.00k. Although I couldn’t find information on the breakdown of Foster’s pay, if some portion were non-cash items such as stocks and options, then variabilities in FIH’s share price can affect the actual level of what the CEO actually collects at the end of the year.
Is FIH’s CEO overpaid relative to the market?
Even though one size does not fit all, since remuneration should account for specific factors of the company and market, we can estimate a high-level thresold to see if FIH is an outlier. This outcome helps investors ask the right question about Foster’s incentive alignment. Generally, a UK small-cap is worth around £696M, produces earnings of £67M, and pays its CEO circa £1M per annum. Taking into account FIH’s size and performance, in terms of market cap and earnings, it appears that Foster is compensated similar to the average UK small-cap CEO This indicates that Foster’s pay is fair.
In order to determine whether or not you should invest in FIH, your thesis should be built on fundamentals. Even though CEO pay isn’t technically a key concern, it could serve as an indication as to how board members align incentives and how they think about setting policies. These issues directly impacts how FIH makes money, and factors impacting your return on investment. If you have not done so already, I urge you to complete your research by taking a look at the following:
- Governance: To find out more about FIH’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 FIH? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.