Why Oxbridge Re Holdings Limited’s (NASDAQ:OXBR) CEO Pay Check Matters To You

Jay Madhu took the helm as Oxbridge Re Holdings Limited’s (NASDAQ:OXBR) CEO and grew market cap to $12.61M 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 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. View our latest analysis for Oxbridge Re Holdings

What has been the trend in OXBR’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. Recently, OXBR released negative earnings of -$22.9M , compared to the previous year’s positive earnings. Furthermore, OXBR hasn’t always been loss-making, with an average EPS of $0.39 over the past five years. In the situation of negative earnings, the company may be going through a period of reinvestment and growth, or it can be a signal of some headwind. In any event, CEO compensation should mirror the current state of the business. In the latest financial report, Madhu’s total remuneration more than doubled, to $293,504 , but from a small basis.
NasdaqCM:OXBR Income Statement Jan 13th 18
NasdaqCM:OXBR Income Statement Jan 13th 18

Is OXBR’s CEO overpaid relative to the market?

Though one size does not fit all, as remuneration should account for specific factors of the company and market, we can fashion a high-level yardstick to see if OXBR deviates substantially from its peers. This outcome can help shareholders ask the right question about Madhu’s incentive alignment. Generally, a US small-cap has a value of $1B, creates earnings of $96M, and remunerates its CEO at roughly $2.7M per annum. Normally I would use earnings and market cap to account for variations in performance, however, OXBR’s negative earnings lower 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. On the whole, though OXBR is unprofitable, it seems like the CEO’s pay is sound.

What this means for you:

Are you a shareholder? Hopefully this article has given you insight on how shareholders should think about OXBR’s governance policies such as CEO pay. As an investor, you have the right to understand how the board thinks about management incentives, and also the right to vote for and against substantial CEO pay changes. Governance is a big factor in investing, and I encourage you to dig deeper into those that represent your voice on the board. To find out more about OXBR’s governance, look through our infographic report of the company’s board and management.

Are you a potential investor? Although remuneration can be a useful gauge of whether Madhu’s incentives are well-aligned with OXBR’s shareholders, it is certainly not sufficient to base your investment decision solely on this factor. Whether the company is fundamentally strong depends on OXBR’s financial health and its future outlook. To research more about these fundamentals, I recommend you check out our simple infographic report on OXBR’s financial metrics.

PS. If you are not interested in Oxbridge Re Holdings anymore, you can use our free platform to see my list of over 50 sustainable companies producing great returns.