In This Article:
Wolfgang Storf took the reins as CEO of Neurotech International Limited’s (ASX:NTI) and grew market cap to AU$19.61M recently. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. Today we will assess Storf’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. View our latest analysis for Neurotech International
What has NTI’s performance been like?
Profitability of a company is a strong indication of NTI’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Storf’s performance. Recently, NTI produced negative earnings of -AU$3.86M . But this is an improvement on prior year’s loss of -AU$4.29M, which may signal a turnaround since NTI has been loss-making for the past five years, on average, with an EPS of -AU$0.06. Since earnings are heading towards the right direction, CEO pay should mirror Storf’s value creation for shareholders. During the same period, Storf’s total remuneration more than doubled, to AU$669.81K .
Is NTI overpaying the CEO?
While no standard benchmark exists, since compensation should account for specific factors of the company and market, we can gauge a high-level yardstick to see if NTI is an outlier. This exercise helps investors ask the right question about Storf’s incentive alignment. Typically, an Australian small-cap is worth around $140M, creates earnings of $10M, and remunerates its CEO circa $500,000 per annum. Normally I’d use market cap and profit as factors determining performance, however, NTI’s negative earnings lower the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Storf’s pay exceeds its peer group.
What this means for you:
My analysis shows that Storf may be paid above the appropriate level, based on the size of NTI and its recent year’s earnings performance. The question to answer now is whether this level of pay is justified. There are most likely other factors I have not account for, but in any case, this outcome should provide a basis for you as shareholders, to question the board’s decision to increase CEO pay in the future. If you have not done so already, I urge you to complete your research by taking a look at the following: