Here's Why Shareholders May Want To Be Cautious With Increasing Tera Software Limited's (NSE:TERASOFT) CEO Pay Packet

The share price of Tera Software Limited (NSE:TERASOFT) has increased significantly over the past few years. However, the earnings growth has not kept up with the share price momentum, suggesting that some other factors may be driving the price direction. Some of these issues will occupy shareholders' minds as the AGM rolls around on 24 September 2022. It would also be an opportunity for them to influence management through exercising their voting power on company resolutions, including CEO and executive remuneration, which could impact on firm performance in the future. From what we gathered, we think shareholders should be wary of raising CEO compensation until the company shows some marked improvement.

View our latest analysis for Tera Software

Comparing Tera Software Limited's CEO Compensation With The Industry

At the time of writing, our data shows that Tera Software Limited has a market capitalization of ₹606m, and reported total annual CEO compensation of ₹8.4m for the year to March 2022. There was no change in the compensation compared to last year. It is worth noting that the CEO compensation consists entirely of the salary, worth ₹8.4m.

In comparison with other companies in the industry with market capitalizations under ₹16b, the reported median total CEO compensation was ₹2.2m. Hence, we can conclude that Gopi Tummala is remunerated higher than the industry median. What's more, Gopi Tummala holds ₹69m worth of shares in the company in their own name, indicating that they have a lot of skin in the game.

Component	2022	2021	Proportion (2022)
Salary	₹8.4m	₹8.4m	100%
Other	-	-	-
Total Compensation	₹8.4m	₹8.4m	100%

Speaking on an industry level, nearly 98% of total compensation represents salary, while the remainder of 2% is other remuneration. On a company level, Tera Software prefers to reward its CEO through a salary, opting not to pay Gopi Tummala through non-salary benefits. If salary is the major component in total compensation, it suggests that the CEO receives a higher fixed proportion of the total compensation, regardless of performance.

Tera Software Limited's Growth

Tera Software Limited has reduced its earnings per share by 97% a year over the last three years. Its revenue is down 23% over the previous year.

Overall this is not a very positive result for shareholders. And the fact that revenue is down year on year arguably paints an ugly picture. So given this relatively weak performance, shareholders would probably not want to see high compensation 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 Tera Software Limited Been A Good Investment?

Most shareholders would probably be pleased with Tera Software Limited for providing a total return of 80% over three years. This strong performance might mean some shareholders don't mind if the CEO were to be paid more than is normal for a company of its size.

To Conclude...

Tera Software pays CEO compensation exclusively through a salary, with non-salary compensation completely ignored. Despite the strong returns on shareholders' investments, the fact that earnings have failed to grow makes us skeptical about the stock keeping up its current momentum. 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 compensation can have a massive impact on performance, but it's just one element. We did our research and spotted 4 warning signs for Tera Software that investors should look into moving forward.

Important note: Tera Software 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. 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. Simply Wall St has no position in any stocks mentioned.