Noah Breslow is the CEO of On Deck Capital Inc (NYSE:ONDK), which has recently grown to a market capitalization of US$668.13m. 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. I will break down Breslow’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 Breslow create value?Profitability of a company is a strong indication of ONDK’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Breslow’s performance. In the past year, ONDK produced a profit of US$4.90m , moving ONDK from negative territory of -US$65.05m in the prior year to profitability. This could signal a turnaround given that ONDK has been loss-making for the past five years, on average, with an EPS of -US$2.15. Given earnings are moving the right way, CEO pay should mirror Breslow’s hard work. In the same year, Breslow’s total compensation dropped by -11.55%, to US$1.41m. In addition to this, Breslow’s pay is also made up of 54.27% non-cash elements, which means that fluxes in ONDK’s share price can affect the actual level of what the CEO actually receives.
Is ONDK’s CEO overpaid relative to the market?Though no standard benchmark exists, as compensation should be tailored to the specific company and market, we can determine a high-level thresold to see if ONDK deviates substantially from its peers. This outcome helps investors ask the right question about Breslow’s incentive alignment. Typically, a US small-cap is worth around $1B, generates earnings of $96M, and remunerates its CEO circa $2.7M per annum. Taking into account ONDK’s size and performance, in terms of market cap and earnings, it appears that Breslow is compensated similar to other US CEOs of small-caps, on average. This could mean Breslow is paid a suitable level.
Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in ONDK, 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 ONDK’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 ONDK? 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 firstname.lastname@example.org.