Is Rowsley Ltd (SGX:A50) Excessively Paying Its CEO?

Wee Tuck Tan took the reins as CEO of Rowsley Ltd's (SGX:A50) and grew market cap to SGD615.99M recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. 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 Tan’s pay and compare this to the company’s performance over the same period, as well as measure it against other SGX-listed CEOs leading companies of similar size and profitability. View our latest analysis for Rowsley

What has A50 performance been like?

Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Most recently, A50 produced negative earnings of -SGD78.3M , which is a further decline from prior year's loss of -SGD30.8M. But A50 hasn’t always been loss-making, with an average EPS of SGD0.21 over the past five years. In the situation of unprofitability the company may be facing a period of reinvestment and growth, or it can be a signal of some headwind. Regardless, CEO compensation should be reflective of the current state of the business. From the latest financial statments, Tan's total compensation fell by -14.07%, to SGD469,000. Although I couldn't find information on the breakdown of Tan's pay, if some portion were non-cash items such as stocks and options, then variabilities in A50's share price can impact the real level of what the CEO actually takes home at the end of the day.

Is A50 overpaying the CEO?

Despite the fact that one size does not fit all, since compensation should be tailored to the specific company and market, we can determine a high-level benchmark to see if A50 deviates substantially from its peers. This exercise can help shareholders ask the right question about Tan’s incentive alignment. On average, a SGX small-cap has a value of SG$396M, produces earnings of SG$29.7M, and pays its CEO circa SG$1.2M per year. Normally I would use earnings and market cap to account for variations in performance, however, A50's negative earnings reduces the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Tan is remunerated sensibly relative to peers. On the whole, although A50 is loss-making, it seems like the CEO’s pay is sound.

What this means for you:

Are you a shareholder? In the upcoming year's AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose an executive pay raise. Will this raise take Tan's pay beyond the bound of reasonableness, or will it help in retaining the talented executive? Being proactive in governance decisions is a key part to investing, and collectively, investors can make a big difference. To find out more about A50's governance, look through our infographic report of the company's board and management.

Are you a potential investor? While CEO compensation is a good indication for how well-aligned the company leader is its investors, it is certainly not enough to simply base your investment decision on this metric. Regardless of whether Tan's pay is above or below peers, the more important factors to look at is A50's track record of performance and future outlook moving forward. To research more about these fundamentals, I recommend you check out our simple infographic report on A50's financial metrics.

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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.