Arron Sutherland is the CEO of ICC Holdings Inc (NASDAQ:ICCH), which has recently grown to a market capitalization of US$48.39m. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. 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 Sutherland’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.
Did Sutherland create value?Profitability of a company is a strong indication of ICCH’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Sutherland’s performance. Over the last year ICCH produced a profit of US$808.96k , which is a rather significant decline from its prior year’s profit (excluding extraordinary items) of US$2.53m. However, ICCH has strived to maintain a good track record of profitability, given its average EPS of US$0.60 over the past couple of years. In the situation of deteriorating profitability, 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. In the most recent financial statments, Sutherland’s total remuneration increased by 24.17% to US$494.59k. In addition to this, Sutherland’s pay is also made up of 19.22% non-cash elements, which means that variabilities in ICCH’s share price can move the real level of what the CEO actually takes home at the end of the day.
Is ICCH’s CEO overpaid relative to the market?Even though no standard benchmark exists, as remuneration should be tailored to the specific company and market, we can fashion a high-level base line to see if ICCH deviates substantially from its peers. This exercise helps investors ask the right question about Sutherland’s incentive alignment. Typically, a US small-cap is worth around $1B, generates earnings of $96M, and pays its CEO at roughly $2.7M per annum. Accounting for the size of ICCH in terms of market cap, as well as its performance, using earnings as a proxy, it seems that Sutherland is paid on a similar level to other comparable US CEOs of profitable small-caps. This could mean Sutherland is paid a suitable level.
In order to determine whether or not you should invest in ICCH, your thesis should be built on fundamentals. Even though CEO pay isn’t technically a key concern, it could serve as an indication as to how board members align incentives and how they think about setting policies. These issues directly impacts how ICCH makes money, and factors impacting your return on investment. 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 ICCH’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 ICCH? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.