Wayne Jones took the helm as Indoor Skydive Australia Group Limited’s (ASX:IDZ) CEO and grew market cap to AU$23.92M 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 Jones’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 Indoor Skydive Australia Group
Did Jones create value?
Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Recently, IDZ produced negative earnings of -AU$340.86K . However, this is an improvement on prior year’s loss of -AU$2.08M, which may signal a turnaround since IDZ has been loss-making for the past five years, on average, with an EPS of -AU$0.02. Given earnings are moving the right way, CEO pay should be reflective of Jones’s hard work. Over the same period Jones’s total remuneration declined by a significant rate of -34.30%, to AU$288.71K.
What’s a reasonable CEO compensation?
Even though one size does not fit all, as remuneration should be tailored to the specific company and market, we can estimate a high-level thresold to see if IDZ is an outlier. This exercise can help direct shareholders to ask the right question about Jones’s incentive alignment. Generally, an Australian small-cap has a value of $140M, produces earnings of $10M, and remunerates its CEO circa $500,000 per annum. Typically I would look at market cap and earnings as a proxy for performance, however, IDZ’s negative earnings lower the effectiveness of this method. Given the range of pay for small-cap executives, it seems like Jones is paid aptly compared to those in similar-sized companies. On the whole, although IDZ is loss-making, it seems like the CEO’s pay is sound.
Next Steps:
My conclusion is that Jones is not being overpaid. But your role as a shareholder should not end here. As above, this is a relatively simplistic calculation using high-level benchmarket. Proactive shareholders should question their representatives (i.e. the board of directors) how they think about the CEO’s incentive alignment with shareholders and how they balance this with retention and reward. If you have not done so already, I highly recommend you to complete your research by taking a look at the following: