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How Should Investors React To Property Connect Holdings Limited’s (ASX:PCH) CEO Pay?

Ben Rossbaum

Tim Manson is the CEO of Property Connect Holdings Limited (ASX:PCH), which has recently grown to a market capitalization of AU$2.40M. 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 Manson’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 Property Connect Holdings

What has PCH’s performance been like?

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. In the past year, PCH delivered negative earnings of -AU$2.29M , which is a further decline from prior year’s loss of -AU$1.99M. Furthermore, on average, PCH has been loss-making in the past, with a 5-year average EPS of -AU$0.15. In the situation of negative earnings, the company may be facing a period of reinvestment and growth, or it can be an indication of some headwind. Regardless, CEO compensation should be reflective of the current state of the business. In the most recent financial report, Manson’s total remuneration rose by 40.17% to AU$231.01K. Although I couldn’t find information on the composition of Manson’s pay, if some portion were non-cash items such as stocks and options, then fluxes in PCH’s share price can affect the true level of what the CEO actually receives.

ASX:PCH Income Statement Mar 26th 18

Is PCH overpaying the CEO?

Despite the fact that no standard benchmark exists, since remuneration should be tailored to the specific company and market, we can estimate a high-level base line to see if PCH is an outlier. This exercise can help direct shareholders to ask the right question about Manson’s incentive alignment. Generally, an Australian small-cap is worth around $140M, generates earnings of $10M, and pays its CEO at roughly $500,000 per annum. Normally I would use earnings and market cap to account for variations in performance, however, PCH’s negative earnings lower the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Manson is paid aptly compared to those in similar-sized companies. Overall, even though PCH is unprofitable, it seems like the CEO’s pay is appropriate.

Next Steps:

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 Manson’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. If you have not done so already, I urge you to complete your research by taking a look at the following:

  1. Governance: To find out more about PCH’s governance, look through our infographic report of the company’s board and management.
  2. 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.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of PCH? 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.