Did Chase create value?Profitability of a company is a strong indication of BSQR’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Chase’s performance. Most recently, BSQR released negative earnings of -$4M , compared to the previous year’s positive earnings. Furthermore, BSQR hasn’t always been loss-making, with an average EPS of $0.12 over the past five years. During times of unprofitability the company may be facing a period of reinvestment and growth, or it can be a sign of some headwind. In any case, CEO compensation should represent the current condition of the business. From the latest financial report, Chase’s total remuneration declined by a meaningful rate of -27.02%, to $761,255. Moreover, Chase’s pay is also made up of 11.10% non-cash elements, which means that variabilities in BSQR’s share price can move the true level of what the CEO actually takes home at the end of the day.
Is BSQR overpaying the CEO?
While no standard benchmark exists, since remuneration should be tailored to the specific company and market, we can fashion a high-level base line to see if BSQR is an outlier. This outcome helps investors ask the right question about Chase’s incentive alignment. Generally, a US small-cap is worth around $1B, produces earnings of $96M, and pays its CEO circa $2.7M per year. Usually I would use earnings and market cap to account for variations in performance, however, BSQR’s negative earnings lower the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Chase is being paid within the bounds of reasonableness. On the whole, although BSQR is unprofitable, it seems like the CEO’s pay is fair.
What this means for you:
Are you a shareholder? CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Is Chase remunerated appropriately based on other factors we have not covered today? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours. To find out more about BSQR’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 BSQR, 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 BSQR’s financial metrics.PS. If you are not interested in BSQUARE anymore, you can use our free platform to see my list of over 50 sustainable companies producing great returns.