Daemmon Reeve is the CEO of Treatt plc (LON:TET), which has recently grown to a market capitalization of UK£278.73m. 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. Today we will assess Reeve’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.
What has TET’s performance been like?TET 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. Over the last year TET delivered an earnings of UK£10.71m , which is an increase of 45.63% from its last year’s earnings of UK£7.35m. This is an encouraging signal that TET aims to sustain a strong track record of generating profits regardless of the challenges. As profits are moving up and up, CEO pay should mirror Reeve’s hard work. In the same year, Reeve’s total remuneration grew by a mere 3.97% to UK£603.00k.
What’s a reasonable CEO compensation?Despite the fact that one size does not fit all, as remuneration should account for specific factors of the company and market, we can determine a high-level base line to see if TET is an outlier. This outcome helps investors ask the right question about Reeve’s incentive alignment. Normally, a UK small-cap is worth around £696M, generates earnings of £67M, and remunerates its CEO at roughly £1M per annum. Allowing for TET’s size and performance, in terms of market cap and earnings, it seems that Reeve is paid in-line with other comparable UK CEOs of profitable small-caps. This could mean Reeve is paid a suitable level.
In order to determine whether or not you should invest in TET, 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 TET 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:
- Governance: To find out more about TET’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 TET? 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 email@example.com.