Ali Fattaey is the CEO of Curis Inc (NASDAQ:CRIS), which has recently grown to a market capitalization of US$54.99m. 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 Fattaey’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.
What has been the trend in CRIS’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. In the past year, CRIS delivered negative earnings of -US$48.32m . But this is an improvement on prior year’s loss of -US$66.71m, which may signal a turnaround since CRIS has been loss-making for the past five years, on average, with an EPS of -US$1.45. Given earnings are moving the right way, CEO pay should represent Fattaey’s hard work. During this period Fattaey’s total compensation increased by 27.12% to US$2.39m. In addition to this, Fattaey’s pay is also made up of 62.37% non-cash elements, which means that fluctuations in CRIS’s share price can impact the true level of what the CEO actually receives.
Is CRIS’s CEO overpaid relative to the market?
While no standard benchmark exists, since remuneration should account for specific factors of the company and market, we can gauge a high-level yardstick to see if CRIS deviates substantially from its peers. This exercise helps investors ask the right question about Fattaey’s incentive alignment. Typically, a US small-cap is worth around $1B, produces earnings of $96M, and pays its CEO at roughly $2.7M annually. Usually I would look at market cap and earnings as a proxy for performance, however, CRIS’s negative earnings lower the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Fattaey is remunerated sensibly relative to peers. On the whole, although CRIS is unprofitable, it seems like the CEO’s pay is appropriate.
Hopefully this article has given you insight on how shareholders should think about CRIS’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. 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 CRIS’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 CRIS? 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.