Should You Worry About Schneider Electric Infrastructure Limited’s (NSE:SCHNEIDER) CEO Pay?
Prakash Chandraker took the helm as Schneider Electric Infrastructure Limited’s (NSEI:SCHNEIDER) CEO and grew market cap to ₹26.91B 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 Chandraker’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. See our latest analysis for Schneider Electric Infrastructure
What has SCHNEIDER’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, SCHNEIDER produced negative earnings of -₹2.00B , which is a further decline from prior year’s loss of -₹252.86M. Furthermore, on average, SCHNEIDER has been loss-making in the past, with a 5-year average EPS of -₹2.69. In the situation of negative earnings, the company may be incurring a period of reinvestment and growth, or it can be an indication of some headwind. In any event, CEO compensation should emulate the current condition of the business. In the latest financial statments, Chandraker’s total compensation grew by 29.56% to ₹15.54M. Although I couldn’t find information on the breakdown of Chandraker’s pay, if some portion were non-cash items such as stocks and options, then variabilities in SCHNEIDER’s share price can affect the true level of what the CEO actually takes home at the end of the day.
Is SCHNEIDER’s CEO overpaid relative to the market?
Even though one size does not fit all, since remuneration should account for specific factors of the company and market, we can gauge a high-level base line to see if SCHNEIDER deviates substantially from its peers. This exercise can help shareholders ask the right question about Chandraker’s incentive alignment. Generally, a BSE or NSEI small-cap has a value of ₹9.88 Arab, creates earnings of ₹43 Crore, and remunerates its CEO circa ₹73 Lakh annually. Normally I would look at market cap and earnings as a proxy for performance, however, SCHNEIDER’s negative earnings lower the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Chandraker’s pay is above other similar companies.
What this means for you:
My analysis shows that Chandraker may be paid above the appropriate level, based on the size of SCHNEIDER and its recent year’s earnings performance. The question to answer now is whether this level of pay is justified. There are most likely other factors I have not account for, but in any case, this outcome should provide a basis for you as shareholders, to question the board’s decision to increase CEO pay in the future. 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 SCHNEIDER’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 SCHNEIDER? 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.
