Leading Dexus (ASX:DXS) as the CEO, Darren Steinberg took the company to a valuation of AU$9.89B. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. I will break down Steinberg’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. See our latest analysis for Dexus
What has been the trend in DXS’s earnings?
Earnings is a powerful indication of DXS’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Steinberg’s performance in the past year. Most recently, DXS produced a profit of AU$403.00M , which is an increase of 83.77% from its prior year’s earnings of AU$219.30M. This is an encouraging signal that DXS aims to sustain a strong track record of generating profits regardless of the challenges. Given earnings are moving the right way, CEO pay should represent Steinberg’s valued-adding activities. During this period Steinberg’s total compensation rose by 14.88% to AU$4.61M.
What’s a reasonable CEO compensation?
Despite the fact that one size does not fit all, since compensation should account for specific factors of the company and market, we can determine a high-level benchmark to see if DXS deviates substantially from its peers. This exercise can help direct shareholders to ask the right question about Steinberg’s incentive alignment. Generally, an Australian large-cap has a value of $22.6B, creates earnings of $1.5B and pays its CEO circa $4.9M per annum. Considering the size of DXS in terms of market cap, as well as its performance, using earnings as a proxy, it seems that Steinberg is paid in-line with other Australian CEOs of large-caps, on average. This could mean Steinberg is paid a suitable level.
Next Steps:
CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Is Steinberg remunerated appropriately based on other factors we have not covered today? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours. If you have not done so already, I urge you to complete your research by taking a look at the following: