Elizabeth Whitelock has been at the helm as CEO of Veriluma Limited (ASX:VRI), which has grown to a market capitalization of A$5.39M. 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 Whitelock’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 Veriluma
What has VRI performance been like?
Profitability of a company is a strong indication of VRI’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Whitelock’s performance. Over the last year VRI produced negative earnings of -A$14.4M , which is a further decline from prior year’s loss of -A$0.9M. Moreover, on average, VRI has been loss-making in the past, with a 5-year average EPS of -A$3.78. In the situation of unprofitability 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 be reflective of the current state of the business. From the latest financial statments, Whitelock’s total remuneration grew by 31.71% to A$291,416. Although I couldn’t find information on the breakdown of Whitelock’s pay, if some portion were non-cash items such as stocks and options, then variabilities in VRI’s share price can impact the true level of what the CEO actually takes home at the end of the day.
What’s a reasonable CEO compensation?
While there is no cookie-cutter approach, as remuneration should account for specific factors of the company and market, we can fashion a high-level benchmark to see if VRI deviates substantially from its peers. This exercise can help direct shareholders to ask the right question about Whitelock’s incentive alignment. Typically, an Australian small-cap has a value of $140M, generates earnings of $10M, and pays its CEO circa $500,000 per annum. Usually I’d use market cap and profit as factors determining performance, however, VRI’s negative earnings reduces the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Whitelock is remunerated sensibly relative to peers. Overall, even though VRI is unprofitable, it seems like the CEO’s pay is appropriate.