Management Compensation Evaluation - How Does the Change in Compensation Compare to the
Performance of Your Stock's Share Price
In the management compensation evaluation, I compare the change in management's compensation to the
change in the company's share price, in order to evaluate if management's compensation is reasonable or not.
For the management compensation evaluation, I first calculate the change between management's compensation paid
in year one and in year two. For this calculation, I use all the compensation data included in the company's
Then I use the Historical Prices section on the stock's web page on Yahoo Finance to look up the historical quotes for the beginning and end of
year two. (You can find the historical prices section in the top left menu after you have entered the stock's
ticker in the Look Up search bar.) Finally, I compare the relative change of both in order to
conclude if management's compensation is reasonable, neutral or excessive. In the table below you see the
Share Price (% Change)
Management Compensation (% Change)
When management's compensation decreased in a period where it's share price increased, it depends on the reasons
why management took this pay cut before I can form an opinion about the amount of compensation paid. Therefore I
have a 'neutral' rating in these situations.
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Note: Normally, I consider a decrease in
management compensation as a positive signal as the company can now instead invest this money in upgrading the
value of its assets. However, when management has done an outstanding job - supported by an increase in its share
price - I believe they have to be rewarded for such an achievement accordingly.
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1The proxy circular is normally
the primary means for a company to communicate its corporate governance practices to its shareholders.
Shareholders expect the circular to articulate, in plain language, the governancepractices and activities of the board, the qualifications of directors, the issuer’s executive
compensationprograms (particularly as they relate to the alignment between
compensation and the company’s long-termstrategic objectives) and risk
management strategy. Such disclosure assists shareholders in assessing the board’sperformance and its ability to work with management to determine corporate strategy and oversee
themanagement of the company’s primary risks. It also explains how the
compensation structure incentsmanagement to achieve corporate objectives
without exceeding the company’s appetite for risk.
Jeroen Snoeks is the founder of UndervaluedEquity.com, a website for
investors passionate about investing in undervalued stocks. ThroughUndervaluedEquity.com, he shares his
experience and knowledge and will soon reveal his personal stock portfolio.