Is Starvest plc (LON:SVE) Overpaying Its CEO?

Simply Wall St
February 12, 2018
Leading Starvest plc (AIM:SVE) as the CEO, Callum Baxter took the company to a valuation of UK£1.45M. 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 Baxter’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. Check out our latest analysis for Starvest

What has SVE's performance been like?

Earnings is a powerful indication of SVE's ability to invest shareholders' funds and generate returns. Therefore I will use earnings as a proxy of Baxter's performance in the past year. Over the last year SVE released an earnings of UK£302.33K , which is an increase of 272.73% from its prior year's earnings of UK£81.11K. This could be a sign of a successful turnaround since SVE has not always been profitable, given its average EPS of -UK£0.013 over the past five years. As profits are moving up and up, CEO pay should echo Baxter's value creation for shareholders. During the same period, Baxter's total remuneration remained stable at UK£80.00K since the previous year.
AIM:SVE Past Future Earnings Feb 12th 18
AIM:SVE Past Future Earnings Feb 12th 18

What's a reasonable CEO compensation?

Though no standard benchmark exists, since remuneration should be tailored to the specific company and market, we can determine a high-level benchmark to see if SVE deviates substantially from its peers. This outcome can help shareholders ask the right question about Baxter’s incentive alignment. On average, a UK small-cap is worth around £696M, generates earnings of £67M, and remunerates its CEO circa £1M per annum. Based on SVE's size and performance, in terms of market cap and earnings, it seems that Baxter is compensated similar to other comparable UK CEOs of profitable small-caps. This indicates that Baxter’s pay is fair.

Next Steps:

In the upcoming year's AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose an executive pay raise. Will this raise take Baxter's pay beyond the bound of reasonableness, or will it help in retaining the talented executive? Being proactive in governance decisions is a key part to investing, and collectively, investors can make a big difference. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

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