How Should Investors React To Rico Auto Industries' (NSE:RICOAUTO) CEO Pay?

Arvind Kapur is the CEO of Rico Auto Industries Limited (NSE:RICOAUTO), and in this article, we analyze the executive's compensation package with respect to the overall performance of the company. This analysis will also evaluate the appropriateness of CEO compensation when taking into account the earnings and shareholder returns of the company.

View our latest analysis for Rico Auto Industries

How Does Total Compensation For Arvind Kapur Compare With Other Companies In The Industry?

Our data indicates that Rico Auto Industries Limited has a market capitalization of ₹4.8b, and total annual CEO compensation was reported as ₹46m for the year to March 2020. That's a notable increase of 22% on last year. Notably, the salary which is ₹36.3m, represents most of the total compensation being paid.

On comparing similar-sized companies in the industry with market capitalizations below ₹15b, we found that the median total CEO compensation was ₹10m. This suggests that Arvind Kapur is paid more than the median for the industry. What's more, Arvind Kapur holds ₹509m worth of shares in the company in their own name, indicating that they have a lot of skin in the game.

Talking in terms of the industry, salary represented approximately 79% of total compensation out of all the companies we analyzed, while other remuneration made up 21% of the pie. There isn't a significant difference between Rico Auto Industries and the broader market, in terms of salary allocation in the overall compensation package. If salary dominates total compensation, it suggests that CEO compensation is leaning less towards the variable component, which is usually linked with performance.

Rico Auto Industries Limited's Growth

Over the last three years, Rico Auto Industries Limited has shrunk its earnings per share by 76% per year. Its revenue is down 7.1% over the previous year.

Overall this is not a very positive result for shareholders. And the fact that revenue is down year on year arguably paints an ugly picture. It's hard to argue the company is firing on all cylinders, so shareholders might be averse to high CEO remuneration. Moving away from current form for a second, it could be important to check this free visual depiction of what analysts expect for the future.

Has Rico Auto Industries Limited Been A Good Investment?

Since shareholders would have lost about 56% over three years, some Rico Auto Industries Limited investors would surely be feeling negative emotions. Therefore, it might be upsetting for shareholders if the CEO were paid generously.

In Summary...

As previously discussed, Arvind is compensated more than what is normal for CEOs of companies of similar size, and which belong to the same industry. Disappointingly, share price gains over the last three years have failed to materialize. Add to that declining EPS growth, and you have the perfect recipe for shareholder irritation. Understandably, the company's shareholders might have some questions about the CEO's remuneration, given the disappointing performance.

We can learn a lot about a company by studying its CEO compensation trends, along with looking at other aspects of the business. We identified 3 warning signs for Rico Auto Industries (1 is a bit unpleasant!) that you should be aware of before investing here.

Arguably, business quality is much more important than CEO compensation levels. So check out this free list of interesting companies that have HIGH return on equity and low debt.

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This article by Simply Wall St is general in nature. 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. Simply Wall St has no position in any stocks mentioned.
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