We Discuss Why The a2 Milk Company Limited's (NZSE:ATM) CEO Compensation May Be Closely Reviewed

Key Insights

• a2 Milk will host its Annual General Meeting on 15th of November
• Salary of NZ$2.03m is part of CEO David Bortolussi's total remuneration
• Total compensation is 692% above industry average
• a2 Milk's three-year loss to shareholders was 72% while its EPS was down 26% over the past three years

The results at The a2 Milk Company Limited (NZSE:ATM) have been quite disappointing recently and CEO David Bortolussi bears some responsibility for this. Shareholders can take the chance to hold the board and management accountable for the unsatisfactory performance at the next AGM on 15th of November. It would also be an opportunity for shareholders to influence management through voting on company resolutions such as executive remuneration, which could impact the firm significantly. The data we present below explains why we think CEO compensation is not consistent with recent performance.

View our latest analysis for a2 Milk

Comparing The a2 Milk Company Limited's CEO Compensation With The Industry

At the time of writing, our data shows that The a2 Milk Company Limited has a market capitalization of NZ$3.1b, and reported total annual CEO compensation of NZ$5.8m for the year to June 2023. We note that's an increase of 48% above last year. While this analysis focuses on total compensation, it's worth acknowledging that the salary portion is lower, valued at NZ$2.0m.

For comparison, other companies in the New Zealander Food industry with market capitalizations ranging between NZ$1.7b and NZ$5.4b had a median total CEO compensation of NZ$738k. This suggests that David Bortolussi is paid more than the median for the industry. Furthermore, David Bortolussi directly owns NZ$3.4m worth of shares in the company.

Component	2023	2022	Proportion (2023)
Salary	NZ$2.0m	NZ$2.0m	35%
Other	NZ$3.8m	NZ$2.0m	65%
Total Compensation	NZ$5.8m	NZ$3.9m	100%

On an industry level, around 81% of total compensation represents salary and 19% is other remuneration. In a2 Milk's case, non-salary compensation represents a greater slice of total remuneration, in comparison to the broader industry. If non-salary compensation dominates total pay, it's an indicator that the executive's salary is tied to company performance.

The a2 Milk Company Limited's Growth

Over the last three years, The a2 Milk Company Limited has shrunk its earnings per share by 26% per year. It achieved revenue growth of 10% over the last year.

Overall this is not a very positive result for shareholders. And while it's good to see some good revenue growth recently, the growth isn't really fast enough for us to put aside my concerns around EPS. So given this relatively weak performance, shareholders would probably not want to see high compensation for the CEO. Moving away from current form for a second, it could be important to check this free visual depiction of what analysts expect for the future.

Has The a2 Milk Company Limited Been A Good Investment?

Few The a2 Milk Company Limited shareholders would feel satisfied with the return of -72% over three years. This suggests it would be unwise for the company to pay the CEO too generously.

To Conclude...

Along with the business performing poorly, shareholders have suffered with poor share price returns on their investments, suggesting that there's little to no chance of them being in favor of a CEO pay raise. At the upcoming AGM, the board will get the chance to explain the steps it plans to take to improve business performance.

Whatever your view on compensation, you might want to check if insiders are buying or selling a2 Milk shares (free trial).

Important note: a2 Milk 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.