Is ENGlobal Corporation’s (NASDAQ:ENG) CEO Incentives Align With Yours?

Leading ENGlobal Corporation (NASDAQ:ENG) as the CEO, Bill Coskey took the company to a valuation of US$22.84M. 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. Today we will assess Coskey’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. View our latest analysis for ENGlobal

Did Coskey 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. Over the last year ENG produced negative earnings of -US$16.26M , which is a further decline from prior year’s loss of -US$2.25M. Moreover, on average, ENG has been loss-making in the past, with a 5-year average EPS of -US$0.18. During times of negative earnings, the company may be going through a period of reinvestment and growth, or it can be a sign of some headwind. Regardless, CEO compensation should echo the current state of the business. In the most recent report, Coskey’s total remuneration fell by -15.99%, to US$41.43K.
NasdaqCM:ENG Income Statement Apr 19th 18
NasdaqCM:ENG Income Statement Apr 19th 18

Is ENG’s CEO overpaid relative to the market?

Even though one size does not fit all, as remuneration should be tailored to the specific company and market, we can determine a high-level yardstick to see if ENG deviates substantially from its peers. This outcome can help shareholders ask the right question about Coskey’s incentive alignment. Generally, a US small-cap is worth around $1B, generates earnings of $96M, and pays its CEO circa $2.7M per annum. Normally I would look at market cap and earnings as a proxy for performance, however, ENG’s negative earnings reduces the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Coskey is being paid within the bounds of reasonableness. On the whole, although ENG is loss-making, it seems like the CEO’s pay is appropriate.

Next Steps:

You can breathe easy knowing that shareholder funds aren’t being used to overpay ENG’s CEO. However, on the flipside, you should ask whether Coskey is appropriately remunerated on the basis of retention. Its important for shareholders to be active in voting governance decisions, as board members are only representatives of investors’ voices. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

  1. Governance: To find out more about ENG’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 ENG? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!