Is The L.S. Starrett Company (NYSE:SCX) Excessively Paying Its CEO?

Douglas Starrett has been the CEO of The L.S. Starrett Company (NYSE:SCX) since 2001. First, this article will compare CEO compensation with compensation at similar sized companies. Then we’ll look at a snap shot of the business growth. Third, we’ll reflect on the total return to shareholders over three years, as a second measure of business performance. This method should give us information to assess how appropriately the company pays the CEO.

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How Does Douglas Starrett’s Compensation Compare With Similar Sized Companies?

Our data indicates that The L.S. Starrett Company is worth US$39m, and total annual CEO compensation is US$641k. (This figure is for the year to 2018). We think total compensation is more important but we note that the CEO salary is lower, at US$425k. We looked at a group of companies with market capitalizations under US$200m, and the median CEO compensation was US$303k.

As you can see, Douglas Starrett is paid more than the median CEO pay at companies of a similar size, in the same market. However, this does not necessarily mean The L.S. Starrett Company is paying too much. We can better assess whether the pay is overly generous by looking into the underlying business performance.

The graphic below shows how CEO compensation at L.S. Starrett has changed from year to year.

NYSE:SCX CEO Compensation January 18th 19
NYSE:SCX CEO Compensation January 18th 19

Is The L.S. Starrett Company Growing?

The L.S. Starrett Company has reduced its earnings per share by an average of 11% a year, over the last three years. Its revenue is up 3.1% over last year.

Unfortunately, earnings per share have trended lower over the last three years. The fairly low revenue growth fails to impress given that the earnings per share is down. These factors suggest that the business performance wouldn’t really justify a high pay packet for the CEO.

Although we don’t have analyst forecasts, you could get a better understanding of its growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

Has The L.S. Starrett Company Been A Good Investment?

Since shareholders would have lost about 35% over three years, some The L.S. Starrett Company shareholders would surely be feeling negative emotions. This suggests it would be unwise for the company to pay the CEO too generously.

In Summary…

We compared total CEO remuneration at The L.S. Starrett Company with the amount paid at companies with a similar market capitalization. We found that it pays well over the median amount paid in the benchmark group.

We think many shareholders would be underwhelmed with the business growth over the last three years.

Just as bad, share price gains for investors have failed to materialize, over the same period. Some might well form the view that the CEO is paid too generously! CEO compensation is one thing, but it is also interesting to check if the CEO is buying or selling L.S. Starrett (free visualization of insider trades).

Of course, the past can be informative so you might be interested in considering this analytical visualization showing the company history of earnings and revenue.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.