Leading Pochiraju Industries Limited (NSEI:POCHIRAJU) as the CEO, Pochiraju Sudhakar took the company to a valuation of ₹152.20M. 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. I will break down Sudhakar’s pay and compare this to the company’s performance over the same period, as well as measure it against other Indian CEOs leading companies of similar size and profitability. See our latest analysis for Pochiraju Industries
Did Sudhakar create value?
POCHIRAJU 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. Over the last year POCHIRAJU released negative earnings of -₹125.9M . But this is an improvement on prior year’s loss of -₹404.9M, which may signal a turnaround since POCHIRAJU has been loss-making for the past five years, on average, with an EPS of -₹1.53. Given earnings are moving the right way, CEO pay should be reflective of Sudhakar’s valued-adding activities. During this period Sudhakar’s total compensation grew by 99.45% to ₹6,300,000. Although I couldn’t find information on the breakdown of Sudhakar’s pay, if some portion were non-cash items such as stocks and options, then fluctuations in POCHIRAJU’s share price can impact the real level of what the CEO actually collects at the end of the year.
Is POCHIRAJU overpaying the CEO?
Though one size does not fit all, since compensation should account for specific factors of the company and market, we can determine a high-level benchmark to see if POCHIRAJU deviates substantially from its peers. This exercise helps investors ask the right question about Sudhakar’s incentive alignment. Typically, a BSE or NSEI small-cap is worth around ₹9.88 Arab, generates earnings of ₹43 Crore, and pays its CEO at roughly ₹73 Lakh per year. Usually I would use earnings and market cap to account for variations in performance, however, POCHIRAJU’s negative earnings lower the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like
Sudhakar is remunerated sensibly relative to peers. Overall, though POCHIRAJU is unprofitable, it seems like the CEO’s pay is fair.
What this means for you:
Are you a shareholder? 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 Sudhakar’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. To find out more about POCHIRAJU’s governance, look through our infographic report of the company’s board and management.