Bill Coskey took the helm as ENGlobal Corporation’s (NASDAQ:ENG) CEO and grew market cap to US$35.49m 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. I will break down 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.
Did Coskey create value?Profitability of a company is a strong indication of ENG’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Coskey’s performance. Recently, ENG delivered negative earnings of -US$16.58m , which is a further decline from prior year’s loss of -US$2.47m. Moreover, on average, ENG has been loss-making in the past, with a 5-year average EPS of -US$0.19. During times of unprofitability the company may be incurring a period of reinvestment and growth, or it can be an indication of some headwind. In any case, CEO compensation should mirror the current state of the business. In the latest financial statments, Coskey’s total remuneration grew by 19.34% to US$49.44k.
What’s a reasonable CEO compensation?Despite the fact that one size does not fit all, as remuneration should be tailored to the specific company and market, we can gauge a high-level thresold to see if ENG is an outlier. This outcome can help direct shareholders to ask the right question about Coskey’s incentive alignment. Generally, a US small-cap has a value of $1B, creates earnings of $96M, and remunerates its CEO at roughly $2.7M annually. Usually I’d use market cap and profit as factors determining performance, however, ENG’s negative earnings reduces the effectiveness of this method. Given the range of pay for small-cap executives, it seems like Coskey is paid aptly compared to those in similar-sized companies. On the whole, though ENG 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 ENG, 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 highly recommend you to complete your research by taking a look at the following:
- Governance: To find out more about ENG’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 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!
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.