We Discuss Why Cognition Holdings Limited's (JSE:CGN) CEO Compensation May Be Closely Reviewed

By
Simply Wall St
Published
November 19, 2021
JSE:CGN
Source: Shutterstock

Shareholders will probably not be too impressed with the underwhelming results at Cognition Holdings Limited (JSE:CGN) recently. Shareholders will be interested in what the board will have to say about turning performance around at the next AGM on 26 November 2021. It would also be an opportunity for shareholders to influence management through voting on company resolutions such as executive remuneration, which could impact the firm significantly. The data we present below explains why we think CEO compensation is not consistent with recent performance.

Check out our latest analysis for Cognition Holdings

Comparing Cognition Holdings Limited's CEO Compensation With the industry

At the time of writing, our data shows that Cognition Holdings Limited has a market capitalization of R156m, and reported total annual CEO compensation of R3.1m for the year to June 2021. That's a notable decrease of 15% on last year. Notably, the salary of R3.1m is the entirety of the CEO compensation.

For comparison, other companies in the industry with market capitalizations below R3.1b, reported a median total CEO compensation of R3.4m. This suggests that Cognition Holdings remunerates its CEO largely in line with the industry average. Moreover, Mark Smith also holds R7.7m worth of Cognition Holdings stock directly under their own name, which reveals to us that they have a significant personal stake in the company.

Component20212020Proportion (2021)
Salary R3.1m R3.4m 100%
Other - R280k -
Total CompensationR3.1m R3.7m100%

On an industry level, around 51% of total compensation represents salary and 49% is other remuneration. At the company level, Cognition Holdings pays Mark Smith solely through a salary, preferring to go down a conventional route. 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:CGN CEO Compensation November 20th 2021

Cognition Holdings Limited's Growth

Over the last three years, Cognition Holdings Limited has shrunk its earnings per share by 61% per year. In the last year, its revenue is down 12%.

The decline in EPS is a bit concerning. And the impression is worse when you consider revenue is down year-on-year. It's hard to argue the company is firing on all cylinders, so shareholders might be averse to high CEO remuneration. Although we don't have analyst forecasts, you might want to assess this data-rich visualization of earnings, revenue and cash flow.

Has Cognition Holdings Limited Been A Good Investment?

With a three year total loss of 29% for the shareholders, Cognition Holdings Limited would certainly have some dissatisfied shareholders. So shareholders would probably want the company to be less generous with CEO compensation.

In Summary...

Cognition Holdings pays CEO compensation exclusively through a salary, with non-salary compensation completely ignored. Along with the business performing poorly, shareholders have suffered with poor share price returns on their investments, suggesting that there's little to no chance of them being in favor of a CEO pay raise. At the upcoming AGM, management will get a chance to explain how they plan to get the business back on track and address the concerns from investors.

CEO pay is simply one of the many factors that need to be considered while examining business performance. In our study, we found 3 warning signs for Cognition Holdings you should be aware of, and 2 of them don't sit too well with us.

Arguably, business quality is much more important than CEO compensation levels. So check out this free list of interesting companies that have HIGH return on equity and low debt.

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