Is Moleculin Biotech Inc’s (NASDAQ:MBRX) CEO Pay Fair?

Wally Klemp took the helm as Moleculin Biotech Inc’s (NASDAQ:MBRX) CEO and grew market cap to US$54.87M 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 Klemp’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. See our latest analysis for Moleculin Biotech

What has MBRX’s performance been like?

Earnings is a powerful indication of MBRX’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Klemp’s performance in the past year. In the past year, MBRX released negative earnings of -US$8.04M , which is a further decline from prior year’s loss of -US$3.39M. Moreover, on average, MBRX has been loss-making in the past, with a 5-year average EPS of -US$0.40. In the situation of unprofitability 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 mirror the current state of the business. In the most recent financial report, Klemp’s total compensation more than doubled, to US$175.00K , though from a small number. Although I couldn’t find information on the breakdown of Klemp’s pay, if some portion were non-cash items such as stocks and options, then fluxes in MBRX’s share price can affect the actual level of what the CEO actually receives.
NasdaqCM:MBRX Income Statement Mar 10th 18
NasdaqCM:MBRX Income Statement Mar 10th 18

Is MBRX overpaying the CEO?

Though there is no cookie-cutter approach, since compensation should be tailored to the specific company and market, we can fashion a high-level benchmark to see if MBRX is an outlier. This exercise can help shareholders ask the right question about Klemp’s incentive alignment. On average, a US small-cap has a value of $1B, produces earnings of $96M, and remunerates its CEO circa $2.7M annually. Normally I would use earnings and market cap to account for variations in performance, however, MBRX’s negative earnings reduces the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Klemp is paid aptly compared to those in similar-sized companies. On the whole, though MBRX is unprofitable, it seems like the CEO’s pay is sound.

Next Steps:

In the upcoming year’s AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose an executive pay raise. Will this raise take Klemp’s pay beyond the bound of reasonableness, or will it help in retaining the talented executive? Being proactive in governance decisions is a key part to investing, and collectively, investors can make a big difference. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

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