Envirosuite CEO Peter White has entered into a new remuneration agreement.
While the base salary of $300k remains unchanged, Peter will be eligible for an additional 30% of this as a Short Term Incentive (STI) "based on a broad number of financial and non-financial performance measures" including EBITDA (although no figures were detailed).
Personally, I really dislike vague and subjective performance measures. More than happy for management to receive big rewards when they deliver for shareholders -- but these kinds of STIs just leave too much to the board's discretion.
Anyway, without getting into a debate on executive remuneration, I did find the Long Term Incentive (LTI) component very interesting.
If EVS shares hit 50c by June 2023 -- and remain above that level for at least 30 consecutive days -- the CEO will get 1m shares for free. He'll get a further million if shares hit 75c and another million if they hit $1.
This may seem very generous, but I doubt shareholders would be upset if these thresholds were met. After all, the lower tier represents approx. 50% compound annual growth rate in the share price over 3 years!
Again, we can debate how reasonable these levels may or may not be, but I note that if EVS hits its target of $100m in revenue by 2023, a share price of 50c would put the business on a Price/Sales ratio of ~5x. Not too unreasonable at all given the required growth rates.
A cynic would argue that boards do not set targets that they think are unreasonable -- if it's about feathering the nests of insiders, you want to set a very low bar.
Of course, none of this guarantees anything, but i find it very telling in relation to the board's optimism.
[updated to fix incorrect P/s ratio]
[I own EVS shares]
How will I know if I got the thesis wrong?
Envirosuite has provided an edited transcript of analyst and investor questions following the FY20 result.
Announcement can be seen here