What Can We Make Of Lakshmi Machine Works' (NSE:LAXMIMACH) CEO Compensation?

This article will reflect on the compensation paid to Sanjay Jayavarthanavelu who has served as CEO of Lakshmi Machine Works Limited (NSE:LAXMIMACH) since 2010. This analysis will also look to assess whether the CEO is appropriately paid, considering recent earnings growth and investor returns for Lakshmi Machine Works.

View our latest analysis for Lakshmi Machine Works

Comparing Lakshmi Machine Works Limited's CEO Compensation With the industry

According to our data, Lakshmi Machine Works Limited has a market capitalization of ₹66b, and paid its CEO total annual compensation worth ₹33m over the year to March 2020. That's a notable decrease of 62% on last year. While we always look at total compensation first, our analysis shows that the salary component is less, at ₹15m.

In comparison with other companies in the industry with market capitalizations ranging from ₹29b to ₹116b, the reported median CEO total compensation was ₹26m. From this we gather that Sanjay Jayavarthanavelu is paid around the median for CEOs in the industry. What's more, Sanjay Jayavarthanavelu holds ₹882m 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 93% of total compensation out of all the companies we analyzed, while other remuneration made up 7.3% of the pie. Lakshmi Machine Works pays a modest slice of remuneration through salary, as compared to the broader industry. If non-salary compensation dominates total pay, it's an indicator that the executive's salary is tied to company performance.

Lakshmi Machine Works Limited's Growth

Over the last three years, Lakshmi Machine Works Limited has shrunk its earnings per share by 54% per year. Its revenue is down 19% over the previous year.

Few shareholders would be pleased to read that EPS have declined. And the impression is worse when you consider revenue is down year-on-year. It's hard to argue the company is firing on all cylinders, so shareholders might be averse to high CEO remuneration. While we don't have analyst forecasts for the company, shareholders might want to examine this detailed historical graph of earnings, revenue and cash flow.

Has Lakshmi Machine Works Limited Been A Good Investment?

With a total shareholder return of 3.7% over three years, Lakshmi Machine Works Limited has done okay by shareholders. But they would probably prefer not to see CEO compensation far in excess of the median.

In Summary...

As previously discussed, Sanjay is compensated close to the median for companies of its size, and which belong to the same industry. According to our analysis, Lakshmi Machine Works is suffering from uninspiring EPS growth, and even though shareholder returns are stable, they are hardly impressive. This doesn't compare well with CEO compensation, which is largely in line with the industry median. We would stop short of the compensation is inappropriate, but we can't say the executive is underpaid.

CEO pay is simply one of the many factors that need to be considered while examining business performance. We did our research and identified 3 warning signs (and 1 which makes us a bit uncomfortable) in Lakshmi Machine Works we think you should know about.

Important note: Lakshmi Machine Works is an exciting stock, but we understand investors may be looking for an unencumbered balance sheet and blockbuster returns. You might find something better in this list of interesting companies with high ROE 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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