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Murtaza Khorakiwala took the helm as Wockhardt Limited’s (NSEI:WOCKPHARMA) CEO and grew market cap to ₹76.19B recently. 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. Today we will assess Khorakiwala’s pay and compare this to the company’s performance over the same period, as well as measure it against other Indian CEOs leading companies of similar size and profitability. View our latest analysis for Wockhardt
Did Khorakiwala create value?
Profitability of a company is a strong indication of WOCKPHARMA’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Khorakiwala’s performance. Recently, WOCKPHARMA produced negative earnings of -₹6.08B , which is a further decline from prior year’s loss of -₹1.96B. However, WOCKPHARMA hasn’t always been loss-making, with an average EPS of ₹39.19 over the past five years. During times of unprofitability the company may be going through a period of reinvestment and growth, or it can be an indication of some headwind. In any case, CEO compensation should echo the current condition of the business. In the latest report, Khorakiwala’s total remuneration dropped by a trivial -0.60%, to ₹13.20M. Although I couldn’t find information on the breakdown of Khorakiwala’s pay, if some portion were non-cash items such as stocks and options, then fluctuations in WOCKPHARMA’s share price can impact the real level of what the CEO actually collects at the end of the year.
What’s a reasonable CEO compensation?
Despite the fact that one size does not fit all, since remuneration should be tailored to the specific company and market, we can determine a high-level yardstick to see if WOCKPHARMA is an outlier. This exercise can help direct shareholders to ask the right question about Khorakiwala’s incentive alignment. On average, a BSE or NSEI small-cap is worth around ₹9.88 Arab, creates earnings of ₹43 Crore, and pays its CEO at roughly ₹73 Lakh per year. Usually I’d use market cap and profit as factors determining performance, however, WOCKPHARMA’s negative earnings reduces the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Khorakiwala’s pay exceeds its peer group.
What this means for you:
WOCKPHARMA may be paying its CEO above-market rates due to many reasons – retention, reward, or inflated non-cash components of total pay. However, shareholders also should be aware of what the appropriate level is. Boards should be transparent with how they structure CEO pay given that there should be nothing to hide in public companies. Hopefully this analysis has given you the basis for questioning the next CEO pay raise. If you have not done so already, I highly recommend you to complete your research by taking a look at the following: