Mark Lavery took the helm as Cambria Automobiles plc's (LON:CAMB) CEO and grew market cap to UK£59.00m recently. 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. Today we will assess Lavery’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 Cambria Automobiles
What has been the trend in CAMB's earnings?
Profitability of a company is a strong indication of CAMB's ability to generate returns on shareholders' funds through corporate activities. In this exercise, I will use profits as a proxy for Lavery's performance. Most recently, CAMB released an earnings of UK£8.45m compared to its prior year’s earnings of UK£9.04m – a decline of -6.44%. However, CAMB has strived to maintain a good track record of profitability, given its average EPS of UK£0.055 over the past couple of years. In the situation of abating earnings, the company may be going through a period of reinvestment and growth, or it can be a signal of some headwind. In any case, CEO compensation should emulate the current condition of the business. In the most recent financial statments, Lavery's total remuneration grew by 5.57% to UK£850.00k.Is CAMB's CEO overpaid relative to the market?
Despite the fact that no standard benchmark exists, since compensation should account for specific factors of the company and market, we can estimate a high-level thresold to see if CAMB is an outlier. This exercise helps investors ask the right question about Lavery’s incentive alignment. Generally, a UK small-cap is worth around £696M, creates earnings of £67M, and remunerates its CEO at roughly £1M per year. Based on CAMB's size and performance, in terms of market cap and earnings, it appears that Lavery is compensated similar to other UK CEOs of small-caps, on average. This may mean that CAMB is appropriately compensating its CEO.
Next Steps:
My conclusion is that Lavery is not being overpaid. But your role as a shareholder should not end here. As above, this is a relatively simplistic calculation using high-level benchmarket. Proactive shareholders should question their representatives (i.e. the board of directors) how they think about the CEO's incentive alignment with shareholders and how they balance this with retention and reward. 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 CAMB'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 CAMB? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
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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 editorial-team@simplywallst.com.
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.