Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Jon Stretch has been the CEO of ERM Power Limited (ASX:EPW) since 2015. First, this article will compare CEO compensation with compensation at similar sized companies. Then we'll look at a snap shot of the business growth. Third, we'll reflect on the total return to shareholders over three years, as a second measure of business performance. This process should give us an idea about how appropriately the CEO is paid.
View our latest analysis for ERM Power
How Does Jon Stretch's Compensation Compare With Similar Sized Companies?
Our data indicates that ERM Power Limited is worth AU$471m, and total annual CEO compensation is AU$2.1m. (This figure is for the year to June 2018). While this analysis focuses on total compensation, it's worth noting the salary is lower, valued at AU$830k. We examined companies with market caps from AU$289m to AU$1.2b, and discovered that the median CEO total compensation of that group was AU$1.0m.
It would therefore appear that ERM Power Limited pays Jon Stretch more than the median CEO remuneration at companies of a similar size, in the same market. However, this fact alone doesn't mean the remuneration is too high. We can get a better idea of how generous the pay is by looking at the performance of the underlying business.
The graphic below shows how CEO compensation at ERM Power has changed from year to year.
Is ERM Power Limited Growing?
On average over the last three years, ERM Power Limited has shrunk earnings per share by 43% each year (measured with a line of best fit). It achieved revenue growth of 11% over the last year.
Sadly for shareholders, earnings per share are actually down, over three years. There's no doubt that the silver lining is that revenue is up. But it isn't sufficiently fast growth to overlook the fact that earnings per share has gone backwards over three years. It's hard to argue the company is firing on all cylinders, so shareholders might be averse to high CEO remuneration. You might want to check this free visual report on analyst forecasts for future earnings.
Has ERM Power Limited Been A Good Investment?
I think that the total shareholder return of 62%, over three years, would leave most ERM Power Limited shareholders smiling. As a result, some may believe the CEO should be paid more than is normal for companies of similar size.
In Summary...
We examined the amount ERM Power Limited pays its CEO, and compared it to the amount paid by similar sized companies. As discussed above, we discovered that the company pays more than the median of that group.