Should You Worry About Shineco Inc’s (NASDAQ:TYHT) CEO Pay?

Leading Shineco Inc (NASDAQ:TYHT) as the CEO, Yuying Zhang took the company to a valuation of US$39.50M. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. Today we will assess Zhang’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. See our latest analysis for Shineco

Did Zhang create value?

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. Recently, TYHT produced an earnings of US$11.76M , which is an increase of 56.40% from its last year’s earnings of US$7.52M. This is a positive indication that TYHT has strived to maintain a good track record of profitability in the face of any headwinds. Given earnings are moving the right way, CEO pay should echo Zhang’s valued-adding activities. During this period Zhang’s total remuneration increased over two-fold, reaching US$148.18K , but off a low base. Although I couldn’t find information on the composition of Zhang’s pay, if some portion were non-cash items such as stocks and options, then variabilities in TYHT’s share price can affect the true level of what the CEO actually receives.
NasdaqCM:TYHT Past Future Earnings May 23rd 18
NasdaqCM:TYHT Past Future Earnings May 23rd 18

What’s a reasonable CEO compensation?

Despite the fact that one size does not fit all, since remuneration should account for specific factors of the company and market, we can estimate a high-level base line to see if TYHT is an outlier. This exercise can help shareholders ask the right question about Zhang’s incentive alignment. Normally, a US small-cap is worth around $1B, produces earnings of $96M, and pays its CEO at roughly $2.7M annually. Considering TYHT’s size and performance, in terms of market cap and earnings, it seems that Zhang is paid lower than the average US small-cap CEO.

Next Steps:

My conclusion is that Zhang is not being overpaid. But your role as a shareholder should not end here. As above, this is a relatively simplistic calculation using high-level benchmarket. Proactive shareholders should question their representatives (i.e. the board of directors) how they think about the CEO’s incentive alignment with shareholders and how they balance this with retention and reward. 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 TYHT’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 TYHT? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!