Is Central Securities Corp’s (NYSEMKT:CET) CEO Paid Enough Relative To Peers?

Leading Central Securities Corp (AMEX:CET) as the CEO, Wilmot Kidd took the company to a valuation of US$695.30M. 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 Kidd’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. See our latest analysis for Central Securities

Did Kidd create value?

CET can create value to shareholders by increasing its profitability, which in turn is reflected into the share price and the investor’s ability to sell their shares at higher capital gains. Most recently, CET produced an earnings of US$169.21M , which is an increase of 50.22% from its last year’s earnings of US$112.64M. This is a positive indication that CET has strived to maintain a good track record of profitability in the face of any headwinds. As profits are moving up and up, CEO pay should mirror Kidd’s valued-adding activities. Over the same period Kidd’s total compensation dropped by more than half of the prior year’s level, to US$939.75K. Although I couldn’t find information on the breakdown of Kidd’s pay, if some portion were non-cash items such as stocks and options, then fluxes in CET’s share price can impact the true level of what the CEO actually collects at the end of the year.
AMEX:CET Past Future Earnings May 21st 18
AMEX:CET Past Future Earnings May 21st 18

Is CET overpaying the CEO?

Though one size does not fit all, as remuneration should account for specific factors of the company and market, we can estimate a high-level thresold to see if CET is an outlier. This exercise helps investors ask the right question about Kidd’s incentive alignment. On average, a US small-cap has a value of $1B, generates earnings of $96M, and pays its CEO at roughly $2.7M annually. Taking into account CET’s size and performance, in terms of market cap and earnings, it appears that Kidd is being paid well below the average US small-cap CEO.

Next Steps:

In the upcoming year’s AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose an executive pay raise. Will this raise take Kidd’s pay beyond the bound of reasonableness, or will it help in retaining the talented executive? Being proactive in governance decisions is a key part to investing, and collectively, investors can make a big difference. If you have not done so already, I urge you to complete your research by taking a look at the following:

  1. Governance: To find out more about CET’s governance, look through our infographic report of the company’s board and management.
  2. 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.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of CET? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!