Is Altimmune Inc’s (ALT) CEO Paid Enough Relative To Peers?

Bill Enright took the helm as Altimmune Inc’s (NASDAQ:ALT) CEO and grew market cap to USD$30.16M recently. 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 Enright’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 Altimmune

What has ALT performance been like?

Earnings is a powerful indication of ALT’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Enright’s performance in the past year. Recently, ALT produced negative earnings of -$42.9M , which is a further decline from prior year’s loss of -$10.0M. Additionally, on average, ALT has been loss-making in the past, with a 5-year average EPS of -$1.49. During times of negative earnings, the company may be incurring a period of reinvestment and growth, or it can be an indication of some headwind. Regardless, CEO compensation should be reflective of the current state of the business. From the latest report, Enright’s total remuneration dropped by a significant rate of -34.59%, to $333,877.
NasdaqGM:ALT Income Statement Dec 2nd 17
NasdaqGM:ALT Income Statement Dec 2nd 17

What’s a reasonable CEO compensation?

Even though no standard benchmark exists, as compensation should account for specific factors of the company and market, we can fashion a high-level benchmark to see if ALT is an outlier. This exercise helps investors ask the right question about Enright’s incentive alignment. On average, a US small-cap is worth around $1B, produces earnings of $96M, and remunerates its CEO circa $2.7M per year. Typically I would look at market cap and earnings as a proxy for performance, however, ALT’s negative earnings reduces the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Enright is remunerated sensibly relative to peers. Putting everything together, even though ALT is unprofitable, it seems like the CEO’s pay is fair.

What this means for you:

Are you a shareholder? CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Is Enright remunerated appropriately based on other factors we have not covered today? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours. To find out more about ALT’s governance, look through our infographic report of the company’s board and management.

Are you a potential investor? Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in ALT, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. To research more about these fundamentals, I recommend you check out our simple infographic report on ALT’s financial metrics.

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