Sanjaya Gupta took the helm as PNB Housing Finance Limited’s (NSE:PNBHOUSING) CEO and grew market cap to ₹215.93b recently. 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. I will break down Gupta’s pay and compare this to the company’s performance over the same period, as well as measure it against other Indian CEOs leading companies of similar size and profitability.
What has been the trend in PNBHOUSING’s earnings?PNBHOUSING 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. Recently, PNBHOUSING released a profit of ₹8.29b , which is an increase of 58.37% from its prior year’s earnings of ₹5.24b. This is an encouraging signal that PNBHOUSING aims to sustain a strong track record of generating profits regardless of the challenges. Given earnings are moving the right way, CEO pay should be reflective of Gupta’s valued-adding activities. During the same period, Gupta’s total compensation rose by 22.33% to ₹21.61m. Although I couldn’t find information on the composition of Gupta’s pay, if some portion were non-cash items such as stocks and options, then fluxes in PNBHOUSING’s share price can affect the real level of what the CEO actually collects at the end of the year.
Is PNBHOUSING overpaying the CEO?
While there is no cookie-cutter approach, since compensation should account for specific factors of the company and market, we can fashion a high-level benchmark to see if PNBHOUSING is an outlier. This exercise helps investors ask the right question about Gupta’s incentive alignment. On average, a BSE or NSEI mid-cap is worth around ₹159 Arab, produces earnings of ₹5.8 Arab and pays its CEO at roughly ₹2.7 Crore per year. Accounting for PNBHOUSING’s size and performance, in terms of market cap and earnings, it seems that Gupta is being paid well below other BSE and NSEI CEOs of mid-caps, on average.
Hopefully this article has given you insight on how shareholders should think about PNBHOUSING’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. 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 PNBHOUSING’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 PNBHOUSING? 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.