Is Oxbridge Re Holdings Limited’s (NASDAQ:OXBR) CEO Paid Enough To Stay Motivated?

Jay Madhu took the helm as Oxbridge Re Holdings Limited’s (NASDAQ:OXBR) CEO and grew market cap to US$12.04M recently. 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. I will break down Madhu’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 Oxbridge Re Holdings

Did Madhu create value?

OXBR can create value to shareholders by increasing its profitability, which in turn is reflected into the share price and the investor’s ability to sell their shares at higher capital gains. Recently, OXBR produced negative earnings of -US$20.59M , compared to the previous year’s positive earnings. Moreover, OXBR hasn’t always been loss-making, with an average EPS of US$0.15 over the past five years. In the situation of negative earnings, the company may be incurring a period of reinvestment and growth, or it can be a signal of some headwind. In any case, CEO compensation should echo the current state of the business. From the latest financial statments, Madhu’s total remuneration more than doubled, to US$309.16K , though from a small basis.
NasdaqCM:OXBR Income Statement May 15th 18
NasdaqCM:OXBR Income Statement May 15th 18

Is OXBR’s CEO overpaid relative to the market?

Even though one size does not fit all, since compensation should account for specific factors of the company and market, we can gauge a high-level thresold to see if OXBR is an outlier. This exercise helps investors ask the right question about Madhu’s incentive alignment. Typically, a US small-cap has a value of $1B, creates earnings of $96M, and remunerates its CEO circa $2.7M per annum. Normally I’d use market cap and profit as factors determining performance, however, OXBR’s negative earnings reduces the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Madhu is being paid within the bounds of reasonableness. Putting everything together, even though OXBR is loss-making, it seems like the CEO’s pay is reflective of the appropriate level.

Next Steps:

In order to determine whether or not you should invest in OXBR, 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 OXBR 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:

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