Did Hochman create value?Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Most recently, NAKD produced negative earnings of -US$5.79M . However, this is an improvement on prior year’s loss of -US$10.80M, which may signal a turnaround since NAKD has been loss-making for the past five years, on average, with an EPS of -US$7.20. Given earnings are moving the right way, CEO pay should be reflective of Hochman’s value creation for shareholders. Over the same period Hochman’s total remuneration grew by 42.51% to US$400.00K.
What’s a reasonable CEO compensation?
Even though no standard benchmark exists, as remuneration should be tailored to the specific company and market, we can estimate a high-level base line to see if NAKD deviates substantially from its peers. This exercise can help direct shareholders to ask the right question about Hochman’s incentive alignment. On average, a US small-cap has a value of $1B, creates earnings of $96M, and pays its CEO circa $2.7M per year. Usually I would look at market cap and earnings as a proxy for performance, however, NAKD’s negative earnings lower the effectiveness of this method. Given the range of pay for small-cap executives, it seems like Hochman is paid aptly compared to those in similar-sized companies. Putting everything together, though NAKD is unprofitable, it seems like the CEO’s pay is fair.
Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in NAKD, 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 urge you to complete your research by taking a look at the following:
- Governance: To find out more about NAKD’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 NAKD? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!