What has been the trend in BGLOBAL’s earnings?Profitability of a company is a strong indication of BGLOBAL’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Bhhatia’s performance. Most recently, BGLOBAL released negative earnings of -₹8.00M , compared to the previous year’s positive earnings. Moreover, BGLOBAL hasn’t always been loss-making, with an average EPS of ₹1.02 over the past five years. During times of negative earnings, the company may be facing a period of reinvestment and growth, or it can be a sign of some headwind. Regardless, CEO compensation should be reflective of the current state of the business. In the latest report, Bhhatia’s total remuneration rose by 46.67% to ₹2.20M. Although I couldn’t find information on the breakdown of Bhhatia’s pay, if some portion were non-cash items such as stocks and options, then variabilities in BGLOBAL’s share price can impact the real level of what the CEO actually collects at the end of the year.
What’s a reasonable CEO compensation?
Even though no standard benchmark exists, since remuneration should be tailored to the specific company and market, we can determine a high-level base line to see if BGLOBAL is an outlier. This exercise helps investors ask the right question about Bhhatia’s incentive alignment. Generally, a BSE or NSEI small-cap has a value of ₹9.88 Arab, creates earnings of ₹43 Crore, and remunerates its CEO at roughly ₹73 Lakh per annum. Normally I would look at market cap and earnings as a proxy for performance, however, BGLOBAL’s negative earnings lower the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Bhhatia is remunerated sensibly relative to peers. On the whole, although BGLOBAL is unprofitable, it seems like the CEO’s pay is reflective of the appropriate level.
My conclusion is that Bhhatia is not being overpaid. But your role as a shareholder should not end here. As above, this is a relatively simplistic calculation using high-level benchmarket. Proactive shareholders should question their representatives (i.e. the board of directors) how they think about the CEO’s incentive alignment with shareholders and how they balance this with retention and reward. 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 BGLOBAL’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 BGLOBAL? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!