Stuart Gall is the CEO of Medaphor Group Plc (AIM:MED), which has recently grown to a market capitalization of UK£8.62M. 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 Gall’s pay and compare this to the company’s performance over the same period, as well as measure it against other UK CEOs leading companies of similar size and profitability. See our latest analysis for Medaphor Group
What has been the trend in MED’s earnings?
Earnings is a powerful indication of MED’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Gall’s performance in the past year. In the past year, MED released negative earnings of -UK£5.42M , which is a further decline from prior year’s loss of -UK£2.41M. Furthermore, on average, MED has been loss-making in the past, with a 5-year average EPS of -UK£0.086. In the situation of negative earnings, the company may be facing a period of reinvestment and growth, or it can be an indication of some headwind. In any case, CEO compensation should represent the current state of the business. From the latest financial statments, Gall’s total compensation grew by a mere 1.24% to UK£220.46K. Although I couldn’t find information on the composition of Gall’s pay, if some portion were non-cash items such as stocks and options, then variabilities in MED’s share price can impact the actual level of what the CEO actually receives.
Is MED overpaying the CEO?
Despite the fact that one size does not fit all, since remuneration should be tailored to the specific company and market, we can estimate a high-level benchmark to see if MED is an outlier. This outcome can help direct shareholders to ask the right question about Gall’s incentive alignment. Normally, a UK small-cap is worth around £696M, generates earnings of £67M, and pays its CEO circa £1M per annum. Usually I would look at market cap and earnings as a proxy for performance, however, MED’s negative earnings lower the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Gall is remunerated sensibly relative to peers. Overall, though MED is unprofitable, it seems like the CEO’s pay is reflective of the appropriate level.