Does PCI-PAL PLC’s (LON:PCIP) CEO Pay Compare Well With Peers?

William Catchpole took the helm as PCI-PAL PLC’s (AIM:PCIP) CEO and grew market cap to UK£14.68M 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. I will break down Catchpole’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 PCI-PAL

What has been the trend in PCIP’s earnings?

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. Most recently, PCIP released negative earnings of -UK£2.71M , which is a further decline from prior year’s loss of -UK£1.10M. Additionally, on average, PCIP has been loss-making in the past, with a 5-year average EPS of -UK£0.011. In the situation of negative earnings, the company may be incurring a period of reinvestment and growth, or it can be a signal of some headwind. In any case, CEO compensation should mirror the current condition of the business. In the latest report, Catchpole’s total compensation increased by a mere 1.45% to UK£182.09K. Although I couldn’t find information on the composition of Catchpole’s pay, if some portion were non-cash items such as stocks and options, then variabilities in PCIP’s share price can move the real level of what the CEO actually collects at the end of the year.
AIM:PCIP Income Statement Apr 27th 18
AIM:PCIP Income Statement Apr 27th 18

Is PCIP’s CEO overpaid relative to the market?

Though there is no cookie-cutter approach, as remuneration should account for specific factors of the company and market, we can evaluate a high-level base line to see if PCIP deviates substantially from its peers. This exercise can help shareholders ask the right question about Catchpole’s incentive alignment. Typically, a UK small-cap is worth around £696M, produces earnings of £67M, and pays its CEO at roughly £1M per annum. Usually I would use earnings and market cap to account for variations in performance, however, PCIP’s negative earnings reduces the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Catchpole is being paid within the bounds of reasonableness. Overall, although PCIP is loss-making, it seems like the CEO’s pay is fair.

Next Steps:

CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Is Catchpole remunerated appropriately based on other factors we have not covered today? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours. If you have not done so already, I urge you to complete your research by taking a look at the following:

  1. Governance: To find out more about PCIP’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 PCIP? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!