Caren Mason took the helm as STAAR Surgical Company’s (NASDAQ:STAA) CEO and grew market cap to US$1.35b 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 Mason’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 been the trend in STAA’s earnings?Earnings is a powerful indication of STAA’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Mason’s performance in the past year. In the past year, STAA produced an earnings of US$647.00k , moving STAA from negative territory of -US$6.36m in the prior year to profitability. This could signal a turnaround given that STAA has been loss-making for the past five years, on average, with an EPS of -US$0.11. Given earnings are moving the right way, CEO pay should represent Mason’s hard work. Over the same period Mason’s total remuneration increased by 22.08% to US$1.87m. Furthermore, Mason’s pay is also made up of 52.53% non-cash elements, which means that variabilities in STAA’s share price can impact the real level of what the CEO actually collects at the end of the year.
Is STAA overpaying the CEO?
Even though no standard benchmark exists, as remuneration should account for specific factors of the company and market, we can estimate a high-level benchmark to see if STAA is an outlier. This exercise helps investors ask the right question about Mason’s incentive alignment. Typically, a US small-cap has a value of $1B, generates earnings of $96M, and pays its CEO at roughly $2.7M per year. Based on the size of STAA in terms of market cap, as well as its performance, using earnings as a proxy, it appears that Mason is paid in-line with the average US small-cap CEO This indicates that Mason’s pay is fair.
You can breathe easy knowing that shareholder funds aren’t being used to overpay STAA’s CEO. However, on the flipside, you should ask whether Mason is appropriately remunerated on the basis of retention. Its important for shareholders to be active in voting governance decisions, as board members are only representatives of investors’ voices. If you have not done so already, I urge you to complete your research by taking a look at the following:
- Governance: To find out more about STAA’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 STAA? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!