Should You Worry About Altus Strategies plc's (LON:ALS) CEO Salary Level?

Steven Poulton took the reins as CEO of Altus Strategies plc's (AIM:ALS) and grew market cap to £8.88M recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. Today we will assess Poulton’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. View our latest analysis for Altus Strategies

Did Poulton 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, ALS delivered negative earnings of -£2.1M , which is a further decline from prior year's loss of -£0.7M. Additionally, on average, ALS has been loss-making in the past, with a 5-year average EPS of -£0.75. During times of negative earnings, the company may be going through a period of reinvestment and growth, or it can be a sign of some headwind. In any case, CEO compensation should be reflective of the current state of the business. In the most recent report, Poulton's total remuneration dropped by -7.36%, to £0. In addition to this, Poulton's pay is also comprised of non-cash elements, which means that fluctuations in ALS's share price can affect the actual level of what the CEO actually takes home at the end of the day.

What's a reasonable CEO compensation?

Despite the fact that one size does not fit all, as compensation should be tailored to the specific company and market, we can fashion a high-level benchmark to see if ALS deviates substantially from its peers. This exercise can help direct shareholders to ask the right question about Poulton’s incentive alignment. On average, a UK small-cap is worth around £696M, creates earnings of £67M, and pays its CEO circa £1M per year. Typically I would look at market cap and earnings as a proxy for performance, however, ALS's negative earnings lower the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Poulton is paid aptly compared to those in similar-sized companies. On the whole, although ALS is loss-making, it seems like the CEO’s pay is fair.

What this means for you:

Are you a shareholder? Hopefully this article has given you insight on how shareholders should think about ALS'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. To find out more about ALS's governance, look through our infographic report of the company's board and management.

Are you a potential investor? In order to determine whether or not you should invest in ALS, 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 ALS makes money, and factors impacting your return on investment. To research more about these fundamentals, I recommend you check out our simple infographic report on ALS's financial metrics.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.