Today, let me ask you a question.
What all things do you consider checking before investing in a stock?
Your answer would be nothing different from what has ideally been preached to you for so long. And that would be…checking multiple ratios, reading annual reports, how much profits the company is making, what is the CAGR return the stock is generating, and so on.
While analysing all of these factors, did you ever wonder how much is the salary of the CEO or the company’s board of directors?
If not, you will be surprised to know that managerial remuneration is a crucial parameter of corporate governance that most of us fail to check.
What is Managerial Remuneration?
Well, you might wonder, what do we investors have to do with how much salary the company is offering to its higher officials, right?
Let’s simplify. From where does the company offer salaries to its employees? Obviously from the profits the company is making!
Now, if the salaries of higher officials of the company are high, then they are taking a bigger bite of the pie, and a smaller piece is left for investors.
To avoid such scenarios, checking managerial remuneration is a must.
How Much Should The Remuneration Be?
Ideally, the increment the employee is taking should be in sync with the increment of higher officials.
So, let’s say the company is offering an annual increment of 10% to all its employees. So, the increment in salary of all the higher officials should also be close to 10%.
But, you don’t have to do this tedious maths of the salary percentage difference because the Companies Act 2013 has covered you.
Where Can You Find the Managerial Remuneration Section?
The annual report of the company contains a leaflet named corporate governance report. Here, you can check the salaries offered to higher officials of the company.
Now, if the salary of higher officials is gradually increasing with increasing sales and profit, then it’s a good thing. But if higher officials’ salaries are increasing while the company’s sales and profits are decreasing, then it is a red flag.
Remuneration of Startup Founders
Here is the remuneration earned by some famous startup founders:
- According to Business Standard, the Founder of Nykaa, Falguni Nayar, received the highest remuneration of Rs 10.8 crore in FY21. This indicates a five-fold increase in revenue as her remuneration was Rs 2.7 crore in FY19.
- Vijay Shekhar Sharma, founder and CEO of Paytm, drew a compensation of Rs 3.4 crore in the year ending March 2021. As he was reappointed in July 2021, his remuneration was increased to Rs 4 crore annually.
- Deepinder Goyal was appointed as the managing director and CEO of Zomato for the next five years until March 2026, with a remuneration of Rs 3.5 crore. However, he had voluntarily waived off his updated salary for 36 months from April 1, 2021.
Managerial remuneration is a lesser-known yet vital factor to check while analysing a stock for long-term investments. So, the next time you read an annual report, don’t forget to check the corporate governance section.
That’s it for today. We hope you found the newsletter helpful!
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* Companies mentioned in the article are for informational purposes. This is not investment advice.