Does Garden Silk Mills Limited’s (NSE:GARDENSILK) CEO Salary Compare Well With Others?

Leading Garden Silk Mills Limited (NSE:GARDENSILK) as the CEO, Praful Shah took the company to a valuation of ₹1.05b. 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 Shah’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. View out our latest analysis for Garden Silk Mills

What has been the trend in GARDENSILK’s earnings?

GARDENSILK 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. In the past year, GARDENSILK delivered negative earnings of -₹838.27m . But this is an improvement on prior year’s loss of -₹1.02b, which may signal a turnaround since GARDENSILK has been loss-making for the past five years, on average, with an EPS of -₹27.52. Since earnings are heading towards the right direction, CEO pay should represent Shah’s hard work. Over the same period Shah’s total remuneration rose by 31.46% to ₹18.89m. Although I couldn’t find information on the composition of Shah’s pay, if some portion were non-cash items such as stocks and options, then fluctuations in GARDENSILK’s share price can affect the real level of what the CEO actually takes home at the end of the day.
NSEI:GARDENSILK Past Future Earnings July 4th 18
NSEI:GARDENSILK Past Future Earnings July 4th 18

What’s a reasonable CEO compensation?

Even though one size does not fit all, since remuneration should be tailored to the specific company and market, we can gauge a high-level benchmark to see if GARDENSILK is an outlier. This outcome can help direct shareholders to ask the right question about Shah’s incentive alignment. Normally, a BSE or NSEI small-cap has a value of ₹9.88 Arab, creates earnings of ₹43 Crore, and remunerates its CEO circa ₹73 Lakh per year. Typically I would use earnings and market cap to account for variations in performance, however, GARDENSILK’s negative earnings reduces the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Shah’s pay is above other similar companies.

What this means for you:

Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in GARDENSILK, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. 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 GARDENSILK’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 GARDENSILK? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!