Just how much skin management has in the game is crucial for investors wanting to put their money into Australia's burgeoning technology sector.
But by looking at a few of the more successful ASX-listed technology companies, RBC Capital Markets has concluded the market is largely underestimating how aligned management incentives are with the company strategies, leaving the stock potentially undervalued.
"The market doesn't see management in these companies necessarily in the same light that the evidence suggests they should," says Paul Mason, an analyst at RBC Capital Markets.
"Some of these chief executives and chairmen have huge holdings in their companies, and it's a good sign that they're putting their money where their mouth is. That should definitely tell the market they are committed to the story."
Investors tend to get spooked when directors divest out of their firms, but Mr Mason says it pays to look at the nature of those holdings compared to their personal net wealth.
"You can have cases where an entrepreneur has founded a company and literally everything he owns is shares in that company," says Mr Mason. "As long as his holding remains significant, he might have sold a bit to pay for a house or something, that's not necessarily a sign the company is about to collapse."
But investors do sometimes tend to get spooked when directors sell.
Shares in construction software company Aconex took a belting in November last year as news broke two executive directors, Leigh Jasper and Robert Phillpot, and a non-executive director, Simon Yencken, had cashed in a portion of their holdings. This, combined with questions about the company's seemingly opaque accounting practices, saw the stock more than halve from its intra-year high.
"The market saw those directors sell out and gave the share price a beating, but it amounted to like a 2 per cent sale," says Mr Mason. "What's important is they still have meaningful holdings and their remuneration structure is closely aligned with the company's goals."
RBC points to the structure of data centre firm NEXTDC's remuneration target as one that cleanly aligns shareholder priorities with that of the company.
The long and short-term incentive plans of chief executive Craig Scroggie are directly linked to growing the revenue base as fast as possible as well as building out key assets before anybody else does.
"Broadly, having remuneration structures that have a bigger tilt towards short-term incentives is a better screen for shareholders," says Mr Mason. "With NEXTDC, they don't contemplate earnings-per-share so much which deals with dilution, they're more worried about building out their assets."
It also doesn't hurt that Mr Scroggie has been consistently buying up the company's stock on the ASX.
But having a chief executive who is also a major shareholder can sometimes frustrate fellow shareholders, who might feel their voices may not be heard should they want to question the company's direction.
Chief executive of logistics software company WiseTech, Richard White, owns more than half the stock in the company making his involvement in the business deeply entwined.
"With those kinds of holdings, you have to completely agree with their strategy in order to invest alongside them," says Mr Mason.
"While shareholder activism hasn't been a massive theme in this sector yet, it could be an issue if you disagreed with management who also held such large positions."