Why DLF Limited’s (NSE:DLF) CEO Pay Matters To You
Rajeev Talwar is the CEO of DLF Limited (NSEI:DLF), which has recently grown to a market capitalization of ₹380.36B. 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. I will break down Talwar’s pay and compare this to the company’s performance over the same period, as well as measure it against other Indian CEOs leading companies of similar size and profitability. View our latest analysis for DLF
Did Talwar create value?
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, DLF released an earnings of ₹43.65B , which is an increase of 626.98% from its last year’s earnings of ₹6.00B. This is a positive indication that DLF has strived to maintain a good track record of profitability in the face of any headwinds. As profits are moving up and up, CEO pay should echo Talwar’s value creation for shareholders. In the same year, Talwar’s total compensation declined by -9.70%, to ₹62.36M. Although I couldn’t find information on the breakdown of Talwar’s pay, if some portion were non-cash items such as stocks and options, then fluxes in DLF’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?
Though there is no cookie-cutter approach, since compensation should account for specific factors of the company and market, we can determine a high-level base line to see if DLF deviates substantially from its peers. This outcome helps investors ask the right question about Talwar’s incentive alignment. On average, a BSE or NSEI large-cap has a value of ₹879 Arab, generates earnings of ₹36 Arab and remunerates its CEO at roughly ₹7 Crore annually. Based on the size of DLF in terms of market cap, as well as its performance, using earnings as a proxy, it appears that Talwar is paid in-line with other BSE and NSEI CEOs of large-caps, on average. This indicates that Talwar’s pay is fair.
Next Steps:
My conclusion is that Talwar 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 urge you to complete your research by taking a look at the following:
Governance: To find out more about DLF’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 DLF? 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.