Stock Analysis

How Should Investors React To Insimbi Industrial Holdings' (JSE:ISB) CEO Pay?

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JSE:ISB
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Fred Botha became the CEO of Insimbi Industrial Holdings Limited (JSE:ISB) in 2017, and we think it's a good time to look at the executive's compensation against the backdrop of overall company performance. This analysis will also assess whether Insimbi Industrial Holdings pays its CEO appropriately, considering recent earnings growth and total shareholder returns.

Check out our latest analysis for Insimbi Industrial Holdings

How Does Total Compensation For Fred Botha Compare With Other Companies In The Industry?

According to our data, Insimbi Industrial Holdings Limited has a market capitalization of R275m, and paid its CEO total annual compensation worth R4.9m over the year to February 2020. Notably, that's a decrease of 19% over the year before. We note that the salary portion, which stands at R3.72m constitutes the majority of total compensation received by the CEO.

For comparison, other companies in the industry with market capitalizations below R2.9b, reported a median total CEO compensation of R4.7m. From this we gather that Fred Botha is paid around the median for CEOs in the industry. Moreover, Fred Botha also holds R21m worth of Insimbi Industrial Holdings stock directly under their own name, which reveals to us that they have a significant personal stake in the company.

Component20202019Proportion (2020)
Salary R3.7m R3.5m 76%
Other R1.2m R2.5m 24%
Total CompensationR4.9m R6.0m100%

On an industry level, roughly 75% of total compensation represents salary and 25% is other remuneration. Although there is a difference in how total compensation is set, Insimbi Industrial Holdings more or less reflects the market in terms of setting the salary. If salary is the major component in total compensation, it suggests that the CEO receives a higher fixed proportion of the total compensation, regardless of performance.

ceo-compensation
JSE:ISB CEO Compensation December 29th 2020

A Look at Insimbi Industrial Holdings Limited's Growth Numbers

Over the last three years, Insimbi Industrial Holdings Limited has shrunk its earnings per share by 9.8% per year. In the last year, its revenue is up 5.8%.

The decline in EPS is a bit concerning. The modest increase in revenue in the last year isn't enough to make us overlook the disappointing change in EPS. 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 Insimbi Industrial Holdings Limited Been A Good Investment?

With a three year total loss of 47% for the shareholders, Insimbi Industrial Holdings Limited would certainly have some dissatisfied shareholders. This suggests it would be unwise for the company to pay the CEO too generously.

To Conclude...

As previously discussed, Fred is compensated close to the median for companies of its size, and which belong to the same industry. On the other hand, EPS growth and total shareholder return have been negative for the last three years. It's tough to call out the compensation as inappropriate, but shareholders might not favor a raise before company performance improves.

It is always advisable to analyse CEO pay, along with performing a thorough analysis of the company's key performance areas. That's why we did our research, and identified 4 warning signs for Insimbi Industrial Holdings (of which 1 is significant!) that you should know about in order to have a holistic understanding of the stock.

Important note: Insimbi Industrial Holdings 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.

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