Did Mattes create value?Profitability of a company is a strong indication of DBD’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Mattes’s performance. Most recently, DBD released negative earnings of -$202.6M , which is a further decline from prior year’s loss of -$68.8M. Furthermore, on average, DBD has been loss-making in the past, with a 5-year average EPS of -$0.19. During times of unprofitability the company may be going through a period of reinvestment and growth, or it can be an indication of some headwind. In any case, CEO compensation should represent the current condition of the business. From the latest financial statments, Mattes’s total remuneration declined by a non-trivial rate of -36.40%, to $5,966,752.
What’s a reasonable CEO compensation?
Despite the fact that one size does not fit all, since remuneration should be tailored to the specific company and market, we can fashion a high-level base line to see if DBD is an outlier. This outcome can help shareholders ask the right question about Mattes’s incentive alignment. On average, a US small-cap has a value of $1B, generates earnings of $96M, and pays its CEO circa $2.7M annually. Normally I’d use market cap and profit as factors determining performance, however, DBD’s negative earnings reduces the effectiveness of this method. Given the range of pay for small-cap executives, it seems like Mattes’s pay is above other similar companies.
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 another executive pay raise. Although this analysis is relatively simplified, the fact that Mattes’s pay is above its peer group should raise questions as to why this may be the case. To find out more about DBD’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in DBD, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. To research more about these fundamentals, I recommend you check out our simple infographic report on DBD’s financial metrics.PS. If you are not interested in Diebold Nixdorf anymore, you can use our free platform to see my list of over 50 sustainable companies producing great returns.