N. Gopal took the helm as Supreme Petrochem Limited's (NSE:SUPPETRO) CEO and grew market cap to ₹26.59b 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. Today we will assess Gopal’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.
See our latest analysis for Supreme Petrochem
What has been the trend in SUPPETRO's earnings?
Profitability of a company is a strong indication of SUPPETRO's ability to generate returns on shareholders' funds through corporate activities. In this exercise, I will use profits as a proxy for Gopal's performance. In the past year, SUPPETRO delivered an earnings of ₹1.26b compared to its prior year’s earnings of ₹1.44b – a decline of -12.73%. However, SUPPETRO has strived to sustain a strong track record of generating profits, given its average EPS of ₹7.40 over the past couple of years. In the situation of falling profits, the company may be incurring a period of reinvestment and growth, or it can be an indication of some headwind. In any case, CEO compensation should represent the current condition of the business. From the latest report, Gopal's total compensation grew by 47.01% to ₹18.54m. Although I couldn't find information on the breakdown of Gopal's pay, if some portion were non-cash items such as stocks and options, then fluxes in SUPPETRO's share price can impact the actual level of what the CEO actually takes home at the end of the day.Is SUPPETRO overpaying the CEO?
Despite the fact that no standard benchmark exists, since remuneration should account for specific factors of the company and market, we can determine a high-level base line to see if SUPPETRO is an outlier. This exercise helps investors ask the right question about Gopal’s incentive alignment. Normally, a BSE or NSEI small-cap has a value of ₹9.88b, generates earnings of ₹430m, and pays its CEO at roughly ₹7.3m per annum. Accounting for the size of SUPPETRO in terms of market cap, as well as its performance, using earnings as a proxy, it appears that Gopal is compensated similar to other comparable BSE and NSEI CEOs of profitable small-caps. This could mean Gopal is paid a suitable level.Next Steps:
You can breathe easy knowing that shareholder funds aren't being used to overpay SUPPETRO's CEO. However, on the flipside, you should ask whether Gopal is appropriately remunerated on the basis of retention. Its important for shareholders to be active in voting governance decisions, as board members are only representatives of investors' voices. 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 SUPPETRO'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 SUPPETRO? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
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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 editorial-team@simplywallst.com.
Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.