Lee Schofield is the CEO of Alliance Aviation Services Limited (ASX:AQZ), which has recently grown to a market capitalization of AU$281.05m. 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. I will break down Schofield’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.
See our latest analysis for Alliance Aviation Services
Did Schofield create value?
Profitability of a company is a strong indication of AQZ’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Schofield’s performance. Most recently, AQZ delivered a profit of AU$18.11m compared to its prior year’s earnings of AU$18.55m – a decline of -2.35%. However, AQZ has strived to maintain a good track record of profitability, given its average EPS of AU$0.092 over the past couple of years. In the situation of declining earnings, the company may be incurring a period of reinvestment and growth, or it can be a sign of some headwind. Regardless, CEO compensation should be reflective of the current state of the business. In the most recent financial statments, Schofield’s total remuneration increased by 29.53% to AU$553.91k. In addition to this, Schofield’s pay is also made up of 11.79% non-cash elements, which means that variabilities in AQZ’s share price can move the real level of what the CEO actually receives.
Is AQZ overpaying the CEO?
Though no standard benchmark exists, as remuneration should account for specific factors of the company and market, we can determine a high-level thresold to see if AQZ is an outlier. This outcome can help direct shareholders to ask the right question about Schofield’s incentive alignment. Generally, an Australian small-cap has a value of $140M, produces earnings of $10M, and pays its CEO at roughly $500,000 per annum. Considering AQZ’s size and performance, in terms of market cap and earnings, it seems that Schofield is compensated similar to other comparable Australian CEOs of profitable small-caps. This indicates that Schofield’s pay is fair.
Next Steps:
My conclusion is that Schofield 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: