What has been the trend in CHFS’s earnings?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. Most recently, CHFS delivered negative earnings of -US$13.85M . However, this is an improvement on prior year’s loss of -US$19.49M, which may signal a turnaround since CHFS has been loss-making for the past five years, on average, with an EPS of -US$865.48. As profits are moving up and up, CEO pay should represent Erb’s valued-adding activities. In the same year, Erb’s total compensation more than doubled, to US$1.34M .
Is CHFS overpaying the CEO?
Even though no standard benchmark exists, as remuneration should account for specific factors of the company and market, we can evaluate a high-level yardstick to see if CHFS deviates substantially from its peers. This outcome can help direct shareholders to ask the right question about Erb’s incentive alignment. Normally, a US small-cap has a value of $1B, creates earnings of $96M, and remunerates its CEO at roughly $2.7M per annum. Typically I would look at market cap and earnings as a proxy for performance, however, CHFS’s negative earnings lower the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Erb is remunerated sensibly relative to peers. Overall, although CHFS is loss-making, it seems like the CEO’s pay is appropriate.
Hopefully this article has given you insight on how shareholders should think about CHFS’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 CHFS’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 CHFS? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!