This Is Why Serko Limited's (NZSE:SKO) CEO Compensation Looks Appropriate

Serko Limited (NZSE:SKO) has exhibited strong share price growth in the past few years. However, its earnings growth has not kept up, suggesting that there may be something amiss. Some of these issues will occupy shareholders' minds as the AGM rolls around on 18 August 2021. 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 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.

Check out our latest analysis for Serko

How Does Total Compensation For Darrin Grafton Compare With Other Companies In The Industry?

Our data indicates that Serko Limited has a market capitalization of NZ$735m, and total annual CEO compensation was reported as NZ$691k for the year to March 2021. That's a notable increase of 31% on last year. We note that the salary of NZ$358.6k makes up a sizeable portion of the total compensation received by the CEO.

On examining similar-sized companies in the industry with market capitalizations between NZ$285m and NZ$1.1b, we discovered that the median CEO total compensation of that group was NZ$875k. So it looks like Serko compensates Darrin Grafton in line with the median for the industry. What's more, Darrin Grafton holds NZ$76m worth of shares in the company in their own name, indicating that they have a lot of skin in the game.

Component	2021	2020	Proportion (2021)
Salary	NZ$359k	NZ$371k	52%
Other	NZ$332k	NZ$156k	48%
Total Compensation	NZ$691k	NZ$527k	100%

On an industry level, roughly 61% of total compensation represents salary and 39% is other remuneration. In Serko's case, non-salary compensation represents a greater slice of total remuneration, in comparison to the broader industry. If salary dominates total compensation, it suggests that CEO compensation is leaning less towards the variable component, which is usually linked with performance.

Serko Limited's Growth

Serko Limited has reduced its earnings per share by 121% a year over the last three years. It saw its revenue drop 48% over the last year.

The decline in EPS is a bit concerning. And the impression is worse when you consider revenue is down year-on-year. These factors suggest that the business performance wouldn't really justify a high pay packet 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 Serko Limited Been A Good Investment?

Boasting a total shareholder return of 130% over three years, Serko Limited has done well by shareholders. 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...

While the return to shareholders does look promising, it's hard to ignore the lack of earnings growth and this makes us question whether these strong returns will continue. Shareholders should make the most of the coming opportunity to question the board on key concerns they may have and revisit their investment thesis with regards to the company.

CEO compensation is a crucial aspect to keep your eyes on but investors also need to keep their eyes open for other issues related to business performance. We've identified 2 warning signs for Serko that investors should be aware of in a dynamic business environment.

Arguably, business quality is much more important than CEO compensation levels. So check out this free list of interesting companies that have HIGH return on equity 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.
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