Why We Think The L.S. Starrett Company's (NYSE:SCX) CEO Compensation Is Not Excessive At All

The L.S. Starrett Company (NYSE:SCX) 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. These concerns will be at the front of shareholders' minds as they go into the AGM coming up on 13 October 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.

View our latest analysis for L.S. Starrett

Comparing The L.S. Starrett Company's CEO Compensation With the industry

According to our data, The L.S. Starrett Company has a market capitalization of US$83m, and paid its CEO total annual compensation worth US$669k over the year to June 2021. That's a notable increase of 21% on last year. Notably, the salary which is US$359.6k, represents a considerable chunk of the total compensation being paid.

On comparing similar-sized companies in the industry with market capitalizations below US$200m, we found that the median total CEO compensation was US$527k. From this we gather that Douglas Starrett is paid around the median for CEOs in the industry. What's more, Douglas Starrett holds US$2.7m 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	US$360k	US$407k	54%
Other	US$309k	US$144k	46%
Total Compensation	US$669k	US$551k	100%

Speaking on an industry level, nearly 20% of total compensation represents salary, while the remainder of 80% is other remuneration. L.S. Starrett pays out 54% of remuneration in the form of a salary, significantly higher than the industry average. If salary dominates total compensation, it suggests that CEO compensation is leaning less towards the variable component, which is usually linked with performance.

The L.S. Starrett Company's Growth

Over the last three years, The L.S. Starrett Company has shrunk its earnings per share by 34% per year. Its revenue is up 9.0% over the last year.

Overall this is not a very positive result for shareholders. The modest increase in revenue in the last year isn't enough to make us overlook the disappointing change in EPS. These factors suggest that the business performance wouldn't really justify a high pay packet 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 The L.S. Starrett Company Been A Good Investment?

We think that the total shareholder return of 95%, over three years, would leave most The L.S. Starrett Company shareholders smiling. So they may not be at all concerned if the CEO were to be paid more than is normal for companies around the same size.

In Summary...

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. In the upcoming AGM, shareholders will get the opportunity to discuss any concerns with the board, including those related to CEO remuneration and assess if the board's plan will likely improve performance in the future.

CEO compensation is an important area to keep your eyes on, but we've also need to pay attention to other attributes of the company. In our study, we found 4 warning signs for L.S. Starrett you should be aware of, and 1 of them makes us a bit uncomfortable.

Of course, you might find a fantastic investment by looking at a different set of stocks. So take a peek at this free list of interesting companies.

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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