What has been the trend in MCB’s earnings?Earnings is a powerful indication of MCB’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of De Vos ‘s performance in the past year. Over the last year MCB released negative earnings of -UK£2.90M , compared to the previous year’s positive earnings. Moreover, MCB hasn’t always been loss-making, with an average EPS of UK£0.018 over the past five years. In the situation of negative earnings, the company may be going through a period of reinvestment and growth, or it can be a sign of some headwind. In any event, CEO compensation should represent the current state of the business. In the latest financial report, De Vos ‘s total compensation rose by 36.06% to UK£1.22M.
Is MCB’s CEO overpaid relative to the market?
Though one size does not fit all, as compensation should account for specific factors of the company and market, we can estimate a high-level thresold to see if MCB is an outlier. This outcome can help shareholders ask the right question about De Vos ’s incentive alignment. On average, a UK small-cap is worth around £696M, generates earnings of £67M, and remunerates its CEO circa £1M annually. Usually I would use earnings and market cap to account for variations in performance, however, MCB’s negative earnings lower the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like De Vos ‘s pay outstrips those in comparable companies.
What this means for you:
My analysis shows that De Vos may be paid above the appropriate level, based on the size of MCB and its recent year’s earnings performance. The question to answer now is whether this level of pay is justified. There are most likely other factors I have not account for, but in any case, this outcome should provide a basis for you as shareholders, to question the board’s decision to increase CEO pay in the future. If you have not done so already, I urge you to complete your research by taking a look at the following:
- Governance: To find out more about MCB’s governance, look through our infographic report of the company’s board and management.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of MCB? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!