How Should Investors React To ENDRA Life Sciences Inc's (NASDAQ:NDRA) CEO Pay?

Leading ENDRA Life Sciences Inc (NASDAQ:NDRA) as the CEO, Francois Michelon took the company to a valuation of US$9.61M. 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 Michelon’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. Check out our latest analysis for ENDRA Life Sciences

What has been the trend in NDRA'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, NDRA delivered negative earnings of -US$7.46M , which is a further decline from prior year's loss of -US$3.14M. Moreover, on average, NDRA has been loss-making in the past, with a 5-year average EPS of -US$3.21. During times of unprofitability the company may be facing a period of reinvestment and growth, or it can be a signal of some headwind. Regardless, CEO compensation should echo the current state of the business. From the latest report, Michelon's total remuneration more than doubled, to US$1.82M .

What's a reasonable CEO compensation?

Though no standard benchmark exists, since compensation should be tailored to the specific company and market, we can estimate a high-level base line to see if NDRA deviates substantially from its peers. This exercise can help shareholders ask the right question about Michelon’s incentive alignment. Normally, a US small-cap is worth around $1B, creates earnings of $96M, and pays its CEO at roughly $2.7M annually. Usually I would use earnings and market cap to account for variations in performance, however, NDRA's negative earnings reduces the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Michelon is remunerated sensibly relative to peers. Overall, although NDRA is loss-making, it seems like the CEO’s pay is fair.

Next Steps:

Hopefully this article has given you insight on how shareholders should think about NDRA'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:

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

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.