Matt Hill is the CEO of Globe International Limited (ASX:GLB), which has recently grown to a market capitalization of AU$52.04M. 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 Hill’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. View our latest analysis for Globe International
Did Hill create value?
Profitability of a company is a strong indication of GLB’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Hill’s performance. Most recently, GLB produced a profit of AU$5.99M , which is an increase of 38.40% from its last year’s earnings of AU$4.33M. This could be a sign of a successful turnaround since GLB has not always been profitable, given its average EPS of -AU$0.01 over the past five years. Given earnings are moving the right way, CEO pay should represent Hill’s valued-adding activities. In the same year, Hill’s total remuneration increased by 13.15% to AU$1.34M. Although I couldn’t find information on the breakdown of Hill’s pay, if some portion were non-cash items such as stocks and options, then fluctuations in GLB’s share price can move the true level of what the CEO actually receives.
Is GLB overpaying the CEO?
Despite the fact that one size does not fit all, since remuneration should be tailored to the specific company and market, we can estimate a high-level yardstick to see if GLB is an outlier. This outcome helps investors ask the right question about Hill’s incentive alignment. Generally, an Australian small-cap is worth around $140M, creates earnings of $10M, and remunerates its CEO at roughly $500,000 annually. Considering the size of GLB in terms of market cap, as well as its performance, using earnings as a proxy, it seems that Hill is remunerated above other Australian CEOs of small-caps, on average. Even though this is only a basic calculation, investors should be cognizant of this expense.
What this means for you:
In the upcoming year’s AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose another executive pay raise. Although this analysis is relatively simplified, the fact that Hill’s pay is above its peer group should raise questions as to why this may be the case. If you have not done so already, I urge you to complete your research by taking a look at the following: