What has been the trend in BKD’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, BKD produced negative earnings of -US$854.96M , which is a further decline from prior year’s loss of -US$310.17M. Furthermore, on average, BKD has been loss-making in the past, with a 5-year average EPS of -US$1.20. In the situation of unprofitability the company may be incurring a period of reinvestment and growth, or it can be a signal of some headwind. Regardless, CEO compensation should be reflective of the current condition of the business. From the latest report, Smith’s total compensation fell by a substantial rate of -24.64%, to US$6.61M. In addition to this, Smith’s pay is also made up of 16.43% non-cash elements, which means that variabilities in BKD’s share price can affect the true level of what the CEO actually takes home at the end of the day.
What’s a reasonable CEO compensation?
Though there is no cookie-cutter approach, since compensation should account for specific factors of the company and market, we can evaluate a high-level thresold to see if BKD deviates substantially from its peers. This outcome helps investors ask the right question about Smith’s incentive alignment. On average, a US small-cap has a value of $1B, produces earnings of $96M, and pays its CEO circa $2.7M per annum. Normally I would look at market cap and earnings as a proxy for performance, however, BKD’s negative earnings reduces the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Smith’s pay outstrips those in comparable companies.
What this means for you:
CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Why is Smith remuneration above that of similar companies? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours. If you have not done so already, I urge you to complete your research by taking a look at the following:
- 1. Governance: To find out more about BKD’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 BKD? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!