Does ProQR Therapeutics NV’s (PRQR) CEO Pay Reflect Performance?

Daniel de Boer has been at the helm as CEO of ProQR Therapeutics NV (NASDAQ:PRQR), which has grown to a market capitalization of USD$88.98M. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. Today we will assess de Boer’s pay and compare this to the company’s performance over the same period, as well as measure it against other US CEOs leading companies of similar size and profitability. See our latest analysis for PRQR

What has PRQR performance been like?

Earnings is a powerful indication of PRQR’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of de Boer’s performance in the past year. Over the last year PRQR delivered negative earnings of -$41M , which is a further decline from prior year’s loss of -$33M. Moreover, on average, PRQR has been loss-making in the past, with a 5-year average EPS of -$1.14. In the situation of unprofitability the company may be incurring a period of reinvestment and growth, or it can be an indication of some headwind. Regardless, CEO compensation should be reflective of the current state of the business. In the most recent financial statments, de Boer’s total remuneration rose by 45.42% to $827,000.
NasdaqGM:PRQR Income Statement Nov 13th 17
NasdaqGM:PRQR Income Statement Nov 13th 17

What’s a reasonable CEO compensation?

Though one size does not fit all, as remuneration should be tailored to the specific company and market, we can evaluate a high-level thresold to see if PRQR is an outlier. This exercise can help shareholders ask the right question about de Boer’s incentive alignment. On average, a US small-cap has a value of $1B, produces earnings of $96M, and remunerates its CEO circa $2.7M per year. Typically I’d use market cap and profit as factors determining performance, however, PRQR’s negative earnings reduces the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like de Boer is remunerated sensibly relative to peers. On the whole, although PRQR is loss-making, it seems like the CEO’s pay is reflective of the appropriate level.

What this means for you:

Are you a shareholder? You can breathe easy knowing that shareholder funds aren’t being used to overpay PRQR’s CEO. However, on the flipside, you should ask whether de Boer is appropriately remunerated on the basis of retention. Its important for shareholders to be active in voting governance decisions, as board members are only representatives of investors’ voices. To find out more about PRQR’s governance, look through our infographic report of the company’s board and management.

Are you a potential investor? Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in PRQR, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. To research more about these fundamentals, I recommend you check out our simple infographic report on PRQR’s financial metrics.

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