What has been the trend in PBYI’s earnings?Profitability of a company is a strong indication of PBYI’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Auerbach’s performance. In the past year, PBYI delivered negative earnings of -US$243.35M . However, this is an improvement on prior year’s loss of -US$277.90M, which may signal a turnaround since PBYI has been loss-making for the past five years, on average, with an EPS of -US$5.14. Since earnings are heading towards the right direction, CEO pay should represent Auerbach’s hard work. During the same period, Auerbach’s total remuneration grew by 38.28% to US$10.86M.
What’s a reasonable CEO compensation?
Even though no standard benchmark exists, since compensation should account for specific factors of the company and market, we can determine a high-level thresold to see if PBYI deviates substantially from its peers. This outcome can help shareholders ask the right question about Auerbach’s incentive alignment. On average, a US mid-cap is worth around $5B, generates earnings of $290M and remunerates its CEO at roughly $5.3M per annum. Typically I would look at market cap and earnings as a proxy for performance, however, PBYI’s negative earnings lower the usefulness of my formula. Given the range of pay for mid-cap executives, it seems like Auerbach’s pay outstrips those in comparable companies.
What this means for you:
PBYI may be paying its CEO above-market rates due to many reasons – retention, reward, or inflated non-cash components of total pay. However, shareholders also should be aware of what the appropriate level is. Boards should be transparent with how they structure CEO pay given that there should be nothing to hide in public companies. Hopefully this analysis has given you the basis for questioning the next CEO pay raise. 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 PBYI’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 PBYI? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!