Is Starvest plc’s (LON:SVE) CEO Salary Justified?

Callum Baxter is the CEO of Starvest plc (LON:SVE), which has recently grown to a market capitalization of UK£1.53m. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. 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 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. See our latest analysis for Starvest

What has SVE’s performance been like?

SVE 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. Recently, SVE delivered negative earnings of -UK£67.52k , compared to the previous year’s positive earnings. Though, on average, SVE has been loss-making in the past, with a 5-year average EPS of -UK£0.016. In the situation of unprofitability the company may be going through a period of reinvestment and growth, or it can be an indication of some headwind. Regardless, CEO compensation should represent the current condition of the business. In the most recent financial statments, Baxter’s total compensation remained stable at UK£80.00k since the previous year.
AIM:SVE Income Statement July 4th 18
AIM:SVE Income Statement July 4th 18

Is SVE’s CEO overpaid relative to the market?

While one size does not fit all, as compensation should be tailored to the specific company and market, we can determine a high-level yardstick to see if SVE deviates substantially from its peers. This outcome can help direct shareholders to ask the right question about Baxter’s incentive alignment. On average, a UK small-cap is worth around £696M, produces earnings of £67M, and pays its CEO at roughly £1M per annum. Normally I’d use market cap and profit as factors determining performance, however, SVE’s negative earnings lower the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Baxter is being paid within the bounds of reasonableness. Putting everything together, though SVE is unprofitable, it seems like the CEO’s pay is reflective of the appropriate level.

Next Steps:

In order to determine whether or not you should invest in SVE, 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 SVE makes money, and factors impacting your return on investment. 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 SVE’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 SVE? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!