Does China Advanced Construction Materials Group Inc’s (NASDAQ:CADC) CEO Salary Compare Well With Others?

Leading China Advanced Construction Materials Group Inc (NASDAQ:CADC) as the CEO, Xianfu Han took the company to a valuation of US$5.85M. 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 Han’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 China Advanced Construction Materials Group

What has CADC’s performance been like?

Profitability of a company is a strong indication of CADC’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Han’s performance. Recently, CADC delivered a profit of US$623.10K , moving CADC from negative territory of -US$23.44M in the prior year to profitability. This could signal a turnaround given that CADC has been loss-making for the past five years, on average, with an EPS of -US$5.45. As profits are moving up and up, CEO pay should be reflective of Han’s value creation for shareholders. In the same year, Han’s total compensation remained stable at US$300.00K since the previous year.
NasdaqCM:CADC Past Future Earnings Apr 24th 18
NasdaqCM:CADC Past Future Earnings Apr 24th 18

Is CADC overpaying the CEO?

Despite the fact that there is no cookie-cutter approach, since remuneration should account for specific factors of the company and market, we can estimate a high-level benchmark to see if CADC deviates substantially from its peers. This exercise can help direct shareholders to ask the right question about Han’s incentive alignment. Generally, a US small-cap is worth around $1B, generates earnings of $96M, and remunerates its CEO circa $2.7M per annum. Taking into account the size of CADC in terms of market cap, as well as its performance, using earnings as a proxy, it appears that Han is paid on a similar level to other US CEOs of small-caps, on average. This indicates that Han’s pay is fair.

Next Steps:

My conclusion is that Han 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 urge you to complete your research by taking a look at the following:

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