David Fisher took the reins as CEO of Enova International Inc’s (NYSE:ENVA) and grew market cap to US$1.15b recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. Today we will assess Fisher’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.
Did Fisher create value?Profitability of a company is a strong indication of ENVA’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Fisher’s performance. Over the last year ENVA delivered a profit of US$49.64m , which is an increase of 17.41% from its last year’s earnings of US$42.28m. This is a positive indication that ENVA has strived to maintain a good track record of profitability in the face of any headwinds. Since earnings are heading towards the right direction, CEO pay should be reflective of Fisher’s value creation for shareholders. In the same year, Fisher’s total remuneration rose by 47.34% to US$4.72m. Moreover, Fisher’s pay is also made up of 3.18% non-cash elements, which means that fluctuations in ENVA’s share price can move the true level of what the CEO actually collects at the end of the year.
What’s a reasonable CEO compensation?While no standard benchmark exists, since remuneration should account for specific factors of the company and market, we can gauge a high-level base line to see if ENVA is an outlier. This outcome can help direct shareholders to ask the right question about Fisher’s incentive alignment. Normally, a US small-cap has a value of $1B, generates earnings of $96M, and remunerates its CEO at roughly $2.7M per year. Taking into account ENVA’s size and performance, in terms of market cap and earnings, it appears that Fisher is paid more than other US CEOs of profitable small-caps. Even though this is simply a basic calculation, shareholders should be cognizant of this expense.
What this means for you:
In the upcoming year’s AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose another executive pay raise. Although this analysis is relatively simplified, the fact that Fisher’s pay is above its peer group should raise questions as to why this may be the case. 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 ENVA’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 ENVA? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.