Rick Wheeler took the reins as CEO of Geospace Technologies Corporation’s (NASDAQ:GEOS) and grew market cap to US$188.73m recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. I will break down Wheeler’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.
What has GEOS’s performance been like?Earnings is a powerful indication of GEOS’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Wheeler’s performance in the past year. Over the last year GEOS produced negative earnings of -US$47.79m , which is a further decline from prior year’s loss of -US$47.17m. But GEOS hasn’t always been loss-making, with an average EPS of US$0.28 over the past five years. During times of negative earnings, the company may be incurring a period of reinvestment and growth, or it can be a sign of some headwind. In any event, CEO compensation should emulate the current condition of the business. From the latest financial statments, Wheeler’s total remuneration increased by a mere 3.91% to US$566.24k. Moreover, Wheeler’s pay is also made up of 45.31% non-cash elements, which means that variabilities in GEOS’s share price can impact the actual level of what the CEO actually takes home at the end of the day.
Is GEOS overpaying the CEO?
Even though there is no cookie-cutter approach, as compensation should be tailored to the specific company and market, we can gauge a high-level base line to see if GEOS is an outlier. This outcome can help shareholders ask the right question about Wheeler’s incentive alignment. Typically, a US small-cap has a value of $1B, produces earnings of $96M, and pays its CEO circa $2.7M per annum. Typically I would look at market cap and earnings as a proxy for performance, however, GEOS’s negative earnings reduces the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Wheeler is remunerated sensibly relative to peers. Overall, even though GEOS is loss-making, it seems like the CEO’s pay is sound.
Hopefully this article has given you insight on how shareholders should think about GEOS’s governance policies such as CEO pay. As an investor, you have the right to understand how the board thinks about management incentives, and also the right to vote for and against substantial CEO pay changes. Governance is a big factor in investing, and I encourage you to dig deeper into those that represent your voice on the board. 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 GEOS’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 GEOS? 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.