Leading Threat Protect Australia Limited ( ASX:TPS ) as the CEO, Demetrios Pynes took the company to a valuation of AU$19.54M. 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. Today we will assess Pynes'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 Threat Protect Australia
What has been the trend in TPS's earnings?
Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Recently, TPS delivered negative earnings of -AU$45.85K . But this is an improvement on prior year's loss of -AU$58.91K, which may signal a turnaround since TPS has been loss-making for the past five years, on average, with an EPS of -AU$0.055. Since earnings are heading towards the right direction, CEO pay should represent Pynes's valued-adding activities. During the same period, Pynes's total compensation declined by more than half of the prior year's level, to AU$203.52K. Furthermore, Pynes's pay is also comprised of non-cash items, which means that variabilities in TPS's share price can affect the true level of what the CEO actually collects at the end of the year.
Is TPS's CEO overpaid relative to the market?
Though one size does not fit all, as compensation should be tailored to the specific company and market, we can gauge a high-level yardstick to see if TPS deviates substantially from its peers. This exercise can help shareholders ask the right question about Pynes'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 annually. Normally I would look at market cap and earnings as a proxy for performance, however, TPS's negative earnings lower the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Pynes is paid aptly compared to those in similar-sized companies. Putting everything together, even though TPS is unprofitable, it seems like the CEO's pay is reflective of the appropriate level.
Next Steps:
In order to determine whether or not you should invest in TPS, your thesis should be built on fundamentals. Even though CEO pay isn't technically a key concern, it could serve as an indication as to how board members align incentives and how they think about setting policies. These issues directly impacts how TPS makes money, and factors impacting your return on investment. If you have not done so already, I urge you to complete your research by taking a look at the following:
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Governance: To find out more about TPS's governance, look through our infographic report of the company's board and management .
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Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
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Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of TPS? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
