Did Egan create value?Profitability of a company is a strong indication of CODX’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Egan’s performance. Over the last year CODX released negative earnings of -US$6.96M , which is a further decline from prior year’s loss of -US$1.93M. Moreover, on average, CODX has been loss-making in the past, with a 5-year average EPS of -US$0.30. In the situation of unprofitability the company may be going through a period of reinvestment and growth, or it can be a signal of some headwind. Regardless, CEO compensation should emulate the current condition of the business. From the latest report, Egan’s total remuneration increased over two-fold, reaching US$210.00K , but from a small basis. Although I couldn’t find information on the composition of Egan’s pay, if some portion were non-cash items such as stocks and options, then variabilities in CODX’s share price can impact the true level of what the CEO actually takes home at the end of the day.
Is CODX overpaying the CEO?
Despite the fact that one size does not fit all, as remuneration should account for specific factors of the company and market, we can gauge a high-level thresold to see if CODX is an outlier. This outcome can help direct shareholders to ask the right question about Egan’s incentive alignment. Generally, a US small-cap has a value of $1B, generates earnings of $96M, and pays its CEO at roughly $2.7M per annum. Typically I would use earnings and market cap to account for variations in performance, however, CODX’s negative earnings reduces the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Egan is being paid within the bounds of reasonableness. Putting everything together, although CODX is unprofitable, it seems like the CEO’s pay is sound.
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 Egan’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 highly recommend you to complete your research by taking a look at the following:
- Governance: To find out more about CODX’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 CODX? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!