Here's Why Shareholders May Want To Be Cautious With Increasing Richardson Electronics, Ltd.'s (NASDAQ:RELL) CEO Pay Packet

The share price of Richardson Electronics, Ltd. (NASDAQ:RELL) has been growing in the past few years, however, the per-share earnings growth has been lacking, suggesting something is amiss. The upcoming AGM on 05 October 2021 may be an opportunity for shareholders to bring up any concerns they may have for the board’s attention. One way that shareholders can influence managerial decisions is through voting on CEO and executive remuneration packages, which studies show could impact company performance. From what we gathered, we think shareholders should be wary of raising CEO compensation until the company shows some marked improvement.

Check out our latest analysis for Richardson Electronics

How Does Total Compensation For Edward Richardson Compare With Other Companies In The Industry?

Our data indicates that Richardson Electronics, Ltd. has a market capitalization of US$128m, and total annual CEO compensation was reported as US$1.2m for the year to May 2021. Notably, that's an increase of 8.6% over the year before. Notably, the salary which is US$819.7k, represents most 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$455k. This suggests that Edward Richardson is paid more than the median for the industry. Furthermore, Edward Richardson directly owns US$21m worth of shares in the company, implying that they are deeply invested in the company's success.

Component	2021	2020	Proportion (2021)
Salary	US$820k	US$796k	67%
Other	US$411k	US$338k	33%
Total Compensation	US$1.2m	US$1.1m	100%

Talking in terms of the industry, salary represented approximately 29% of total compensation out of all the companies we analyzed, while other remuneration made up 71% of the pie. According to our research, Richardson Electronics has allocated a higher percentage of pay to salary in comparison to the wider industry. If salary dominates total compensation, it suggests that CEO compensation is leaning less towards the variable component, which is usually linked with performance.

A Look at Richardson Electronics, Ltd.'s Growth Numbers

Richardson Electronics, Ltd. has reduced its earnings per share by 12% a year over the last three years. In the last year, its revenue is up 13%.

Overall this is not a very positive result for shareholders. While the revenue growth is good to see, it is outweighed by the fact that EPS are down, over three years. So given this relatively weak performance, shareholders would probably not want to see high compensation for the CEO. We don't have analyst forecasts, but you could get a better understanding of its growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

Has Richardson Electronics, Ltd. Been A Good Investment?

With a total shareholder return of 25% over three years, Richardson Electronics, Ltd. shareholders would, in general, be reasonably content. But they probably wouldn't be so happy as to think the CEO should be paid more than is normal, for companies around this size.

In Summary...

Shareholder returns, while positive, should be looked at along with earnings, which have not grown at all recently. This makes us think the share price momentum may slow in the future. 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 can have a massive impact on performance, but it's just one element. We've identified 2 warning signs for Richardson Electronics that investors should be aware of in a dynamic business environment.

Important note: Richardson Electronics 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.

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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