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Kunjal Patel took the helm as Voltamp Transformers Limited’s (NSE:VOLTAMP) CEO and grew market cap to ₹10.01b recently. 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 Patel’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.
Check out our latest analysis for Voltamp Transformers
Did Patel 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. In the past year, VOLTAMP delivered an earnings of ₹734.84m , which is an increase of 1.76% from its last year’s earnings of ₹722.10m. This is a positive indication that VOLTAMP has strived to maintain a good track record of profitability in the face of any headwinds. Since earnings are heading towards the right direction, CEO pay should mirror Patel’s value creation for shareholders. Over the same period Patel’s total compensation increased by 20.38% to ₹22.65m.
Is VOLTAMP’s CEO overpaid relative to the market?
While there is no cookie-cutter approach, since remuneration should account for specific factors of the company and market, we can gauge a high-level thresold to see if VOLTAMP is an outlier. This exercise helps investors ask the right question about Patel’s incentive alignment. Generally, a BSE or NSEI small-cap has a value of ₹9.88b, generates earnings of ₹430m, and remunerates its CEO at roughly ₹7.3m annually. Taking into account VOLTAMP’s size and performance, in terms of market cap and earnings, it seems that Patel is compensated higher than other BSE and NSEI CEOs of profitable small-caps. Although this is merely a rudimentary estimate, investors should be aware of this expense.
What this means for you:
CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Why is Patel remuneration above that of similar companies? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours. If you have not done so already, I highly recommend you to complete your research by taking a look at the following: