Increases to CEO Compensation Might Be Put On Hold For Now at Chemfab Alkalis Limited (NSE:CHEMFAB)

The share price of Chemfab Alkalis Limited (NSE:CHEMFAB) has been growing in the past few years, however, the per-share earnings growth has been lacking, suggesting something is amiss. Some of these issues will occupy shareholders' minds as the AGM rolls around on 04 August 2021. One way that shareholders can influence managerial decisions is through voting on CEO and executive remuneration packages, which studies show could impact company performance. From the data that we gathered, we think that shareholders should hold off on a raise on CEO compensation until performance starts to show some improvement.

See our latest analysis for Chemfab Alkalis

Comparing Chemfab Alkalis Limited's CEO Compensation With the industry

At the time of writing, our data shows that Chemfab Alkalis Limited has a market capitalization of ₹2.5b, and reported total annual CEO compensation of ₹18m for the year to March 2021. We note that's an increase of 12% above last year. Notably, the salary which is ₹11.2m, 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 ₹6.0m. Accordingly, our analysis reveals that Chemfab Alkalis Limited pays Vaithamanithi Srinivasan north of the industry median. Moreover, Vaithamanithi Srinivasan also holds ₹26m worth of Chemfab Alkalis stock directly under their own name, which reveals to us that they have a significant personal stake in the company.

Component	2021	2020	Proportion (2021)
Salary	₹11m	₹10m	63%
Other	₹6.4m	₹5.6m	37%
Total Compensation	₹18m	₹16m	100%

Talking in terms of the industry, salary represented approximately 88% of total compensation out of all the companies we analyzed, while other remuneration made up 12% of the pie. Chemfab Alkalis sets aside a smaller share of compensation for salary, in comparison to the overall industry. If total compensation veers towards salary, it suggests that the variable portion - which is generally tied to performance, is lower.

A Look at Chemfab Alkalis Limited's Growth Numbers

Chemfab Alkalis Limited has reduced its earnings per share by 35% a year over the last three years. Its revenue is down 12% over the previous year.

Few shareholders would be pleased to read that EPS have declined. And the fact that revenue is down year on year arguably paints an ugly picture. These factors suggest that the business performance wouldn't really justify a high pay packet for the CEO. 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 Chemfab Alkalis Limited Been A Good Investment?

With a total shareholder return of 6.0% over three years, Chemfab Alkalis Limited has done okay by shareholders, but there's always room for improvement. As a result, investors in the company might be reluctant about agreeing to increase CEO pay in the future, before seeing an improvement on their returns.

To Conclude...

While it's true that shareholders have owned decent returns, it's hard to overlook the lack of earnings growth and this makes us question whether these returns will continue. The upcoming AGM will provide shareholders the opportunity to revisit the company’s remuneration policies and evaluate if the board’s judgement and decision-making is aligned with that of the company’s shareholders.

CEO pay is simply one of the many factors that need to be considered while examining business performance. We identified 3 warning signs for Chemfab Alkalis (1 is potentially serious!) that you should be aware of before investing here.

Important note: Chemfab Alkalis 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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