Stuart Brown took the helm as BlackWall Limited’s (ASX:BWF) CEO and grew market cap to AU$60.87M recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. Today we will assess Brown’s pay and compare this to the company’s performance over the same period, as well as measure it against other Australian CEOs leading companies of similar size and profitability. Check out our latest analysis for BlackWall

Did Brown create value?

Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. In the past year, BWF produced a profit of AU$9.34M , which is an increase of 263.71% from its prior year’s earnings of AU$2.57M. This is an encouraging signal that BWF aims to sustain a strong track record of generating profits regardless of the challenges. Since earnings are heading towards the right direction, CEO pay should mirror Brown’s hard work. During the same period, Brown’s total remuneration remained stable at AU$351.61K since the previous year. Although I couldn’t find information on the composition of Brown’s pay, if some portion were non-cash items such as stocks and options, then fluxes in BWF’s share price can move the true level of what the CEO actually takes home at the end of the day.

Is BWF’s CEO overpaid relative to the market?

While one size does not fit all, as remuneration should be tailored to the specific company and market, we can determine a high-level base line to see if BWF is an outlier. This outcome can help shareholders ask the right question about Brown’s incentive alignment. Normally, an Australian small-cap is worth around $140M, generates earnings of $10M, and pays its CEO at roughly $500,000 annually. Allowing for BWF’s size and performance, in terms of market cap and earnings, it appears that Brown is paid in-line with other comparable Australian CEOs of profitable small-caps. This indicates that Brown’s pay is fair.

Next Steps:

Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in BWF, 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. If you have not done so already, I urge you to complete your research by taking a look at the following: