Does Global Construction Services Limited’s (ASX:GCS) CEO Salary Compare Well With Others?
Enzo Gullotti took the helm as Global Construction Services Limited’s (ASX:GCS) CEO and grew market cap to AU$155.10M 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. I will break down Gullotti’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 Global Construction Services
Did Gullotti create value?
Earnings is a powerful indication of GCS’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Gullotti’s performance in the past year. In the past year, GCS released an earnings of AU$10.53M , moving GCS from negative territory of -AU$77.35M in the prior year to profitability. Though, the variability in earnings over the last few years makes us less confidence in forecasting future outcome based on past data. Given earnings are moving the right way, CEO pay should represent Gullotti’s hard work. During the same period, Gullotti’s total remuneration increased by 26.19% to AU$924.78K. Although I couldn’t find information on the composition of Gullotti’s pay, if some portion were non-cash items such as stocks and options, then fluctuations in GCS’s share price can move the true level of what the CEO actually takes home at the end of the day.
What’s a reasonable CEO compensation?
Despite the fact that there is no cookie-cutter approach, as remuneration should account for specific factors of the company and market, we can fashion a high-level benchmark to see if GCS deviates substantially from its peers. This exercise can help direct shareholders to ask the right question about Gullotti’s incentive alignment. Normally, an Australian small-cap has a value of $140M, produces earnings of $10M, and pays its CEO circa $500,000 annually. Based on the size of GCS in terms of market cap, as well as its performance, using earnings as a proxy, it appears that Gullotti is compensated higher than other Australian CEOs of profitable small-caps. Even though this is only a high-level calculation, investors should be cognizant of this expense.
What this means for you:
Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in GCS, 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 highly recommend you to complete your research by taking a look at the following:
Governance: To find out more about GCS’s governance, look through our infographic report of the company’s board and management.
Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of GCS? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.