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Bill Yde took the reins as CEO of GTN Limited’s (ASX:GTN) and grew market cap to AU$393.26M recently. 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. I will break down Yde’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 GTN
What has GTN’s performance been like?
GTN can create value to shareholders by increasing its profitability, which in turn is reflected into the share price and the investor’s ability to sell their shares at higher capital gains. In the past year, GTN produced negative earnings of -AU$41.25M , compared to the previous year’s positive earnings. However, on average, GTN has been loss-making in the past, with a 5-year average EPS of -AU$0.083. During times of negative earnings, the company may be going through a period of reinvestment and growth, or it can be an indication of some headwind. In any event, CEO compensation should echo the current state of the business. In the latest report, Yde’s total remuneration fell by more than half of the prior year’s level, to AU$1.13M. Moreover, Yde’s pay is also made up of 48.97% non-cash elements, which means that fluxes in GTN’s share price can affect the true level of what the CEO actually collects at the end of the year.
What’s a reasonable CEO compensation?
While no standard benchmark exists, as remuneration should be tailored to the specific company and market, we can fashion a high-level benchmark to see if GTN deviates substantially from its peers. This outcome helps investors ask the right question about Yde’s incentive alignment. Normally, an Australian small-cap has a value of $140M, creates earnings of $10M, and pays its CEO at roughly $500,000 per year. Usually I would look at market cap and earnings as a proxy for performance, however, GTN’s negative earnings lower the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Yde’s pay is above other similar companies.
What this means for you:
CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Why is Yde remuneration above that of similar companies? 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: