Does Starvest plc’s (LON:SVE) CEO Pay Reflect Performance?
Callum Baxter took the reins as CEO of Starvest plc’s (AIM:SVE) and grew market cap to £2.20M recently. 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 Baxter’s pay and compare this to the company’s performance over the same period, as well as measure it against other UK CEOs leading companies of similar size and profitability. See our latest analysis for Starvest
Did Baxter create value?
Earnings is a powerful indication of SVE’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Baxter’s performance in the past year. In the past year, SVE released a profit of £0.3M , which is an increase of 272.73% from its prior year’s earnings of £0.1M. This could be a sign of a successful turnaround since SVE has not always been profitable, given its average EPS of -£0.01 over the past five years. As profits are moving up and up, CEO pay should echo Baxter’s value creation for shareholders. In the same year, Baxter’s total remuneration remained stable at £80,000 since the previous year.
Is SVE overpaying the CEO?
While one size does not fit all, since compensation should be tailored to the specific company and market, we can estimate a high-level yardstick to see if SVE is an outlier. This exercise can help direct shareholders to ask the right question about Baxter’s incentive alignment. On average, a UK small-cap is worth around £696M, generates earnings of £67M, and pays its CEO circa £1M annually. Accounting for the size of SVE in terms of market cap, as well as its performance, using earnings as a proxy, it appears that Baxter is paid on a similar level to the average UK small-cap CEO This indicates that Baxter’s pay is fair.
What this means for you:
Are you a shareholder? My conclusion is that Baxter 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. To find out more about SVE’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? Whether Baxter is over or underpaid should not be a deciding factor whether or not you invest in SVE. However, the way the company is governed and policies, such as remuneration, are structured, are important considerations for an investor. The best place to start is to understand how well SVE is placed financially. To research more about these fundamentals, I recommend you check out our simple infographic report on SVE’s financial metrics.
PS. If you are not interested in Starvest anymore, you can use our free platform to see my list of over 50 sustainable companies producing great returns.
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.
