Tim Bartholomaeus is the CEO of Tamawood Limited (ASX:TWD), which has recently grown to a market capitalization of AU$103.42M. 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. Today we will assess Bartholomaeus’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 Tamawood
What has TWD’s performance been like?
Profitability of a company is a strong indication of TWD’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Bartholomaeus’s performance. Over the last year TWD delivered a profit of AU$8.78M compared to its prior year’s earnings of AU$9.20M – a decline of -4.63%. However, TWD has strived to maintain a good track record of profitability, given its average EPS of AU$0.25 over the past couple of years. During times of abating earnings, the company may be incurring a period of reinvestment and growth, or it can be a signal of some headwind. In any case, CEO compensation should mirror the current state of the business. In the latest financial report, Bartholomaeus’s total remuneration grew by 6.98% to AU$318.22K. Although I couldn’t find information on the composition of Bartholomaeus’s pay, if some portion were non-cash items such as stocks and options, then fluctuations in TWD’s share price can impact the true level of what the CEO actually collects at the end of the year.
What’s a reasonable CEO compensation?
Though there is no cookie-cutter approach, since remuneration should account for specific factors of the company and market, we can determine a high-level benchmark to see if TWD is an outlier. This outcome can help shareholders ask the right question about Bartholomaeus’s incentive alignment. On average, an Australian small-cap is worth around $140M, creates earnings of $10M, and remunerates its CEO circa $500,000 per annum. Allowing for the size of TWD in terms of market cap, as well as its performance, using earnings as a proxy, it appears that Bartholomaeus is paid in-line with other Australian CEOs of small-caps, on average. This could mean Bartholomaeus is paid a suitable level.
Next Steps:
In the upcoming year’s AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose an executive pay raise. Will this raise take Bartholomaeus’s pay beyond the bound of reasonableness, or will it help in retaining the talented executive? Being proactive in governance decisions is a key part to investing, and collectively, investors can make a big difference. If you have not done so already, I highly recommend you to complete your research by taking a look at the following: