Chris Gurry took the reins as CEO of CML Microsystems plc’s (LON:CML) and grew market cap to UK£84.92m 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. Today we will assess Gurry’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.
What has CML’s performance been like?
Profitability of a company is a strong indication of CML’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Gurry’s performance. In the past year, CML delivered an earnings of UK£4.14m , which is an increase of 7.03% from its prior year’s earnings of UK£3.87m. This is an encouraging signal that CML aims to sustain a strong track record of generating profits regardless of the challenges. Given earnings are moving the right way, CEO pay should represent Gurry’s value creation for shareholders. During this period Gurry’s total remuneration increased by 8.30% to UK£313.00k. Although I couldn’t find information on the breakdown of Gurry’s pay, if some portion were non-cash items such as stocks and options, then fluctuations in CML’s share price can affect the actual level of what the CEO actually takes home at the end of the day.
What’s a reasonable CEO compensation?
Despite the fact that no standard benchmark exists, since remuneration should be tailored to the specific company and market, we can gauge a high-level thresold to see if CML deviates substantially from its peers. This outcome can help shareholders ask the right question about Gurry’s incentive alignment. On average, a UK small-cap is worth around £696M, produces earnings of £67M, and remunerates its CEO circa £1M per year. Allowing for the size of CML in terms of market cap, as well as its performance, using earnings as a proxy, it seems that Gurry is paid on a similar level to other UK CEOs of small-caps, on average. This indicates that Gurry’s pay is fair.
Hopefully this article has given you insight on how shareholders should think about CML’s governance policies such as CEO pay. As an investor, you have the right to understand how the board thinks about management incentives, and also the right to vote for and against substantial CEO pay changes. Governance is a big factor in investing, and I encourage you to dig deeper into those that represent your voice on the board. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
- Governance: To find out more about CML’s governance, look through our infographic report of the company’s board and management.
- 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.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of CML? 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 past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.