Maryjo Cohen took the helm as National Presto Industries Inc’s (NYSE:NPK) CEO and grew market cap to US$840.03m recently. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. I will break down Cohen’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.
What has NPK’s performance been like?Earnings is a powerful indication of NPK’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Cohen’s performance in the past year. Recently, NPK released a profit of US$44.34m compared to its prior year’s earnings of US$45.34m – a decline of -2.22%. However, NPK has strived to maintain a good track record of profitability, given its average EPS of US$5.83 over the past couple of years. In the situation of deteriorating profitability, the company may be going through a period of reinvestment and growth, or it can be an indication of some headwind. In any case, CEO compensation should be reflective of the current condition of the business. In the latest financial statments, Cohen’s total remuneration grew by 5.29% to US$700.79k. Moreover, Cohen’s pay is also made up of 14.26% non-cash elements, which means that fluxes in NPK’s share price can affect the real level of what the CEO actually receives.
What’s a reasonable CEO compensation?
Despite the fact that one size does not fit all, as compensation should be tailored to the specific company and market, we can fashion a high-level yardstick to see if NPK deviates substantially from its peers. This exercise helps investors ask the right question about Cohen’s incentive alignment. Generally, a US small-cap is worth around $1B, generates earnings of $96M, and pays its CEO circa $2.7M annually. Allowing for NPK’s size and performance, in terms of market cap and earnings, it seems that Cohen is paid lower than the average US small-cap CEO.
Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in NPK, 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. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
- Governance: To find out more about NPK’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 NPK? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!