Leading Pieris Pharmaceuticals Inc (NASDAQ:PIRS) as the CEO, Steve Yoder took the company to a valuation of US$275.04m. 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. I will break down Yoder’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 PIRS’s performance been like?Earnings is a powerful indication of PIRS’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Yoder’s performance in the past year. Over the last year PIRS released negative earnings of -US$8.48m . But this is an improvement on prior year’s loss of -US$30.83m, which may signal a turnaround since PIRS has been loss-making for the past five years, on average, with an EPS of -US$2.60. Since earnings are heading towards the right direction, CEO pay should echo Yoder’s hard work. In the same year, Yoder’s total remuneration grew by 14.64% to US$1.25m. Furthermore, Yoder’s pay is also made up of 45.14% non-cash elements, which means that fluxes in PIRS’s share price can move the real level of what the CEO actually takes home at the end of the day.
What’s a reasonable CEO compensation?Even though no standard benchmark exists, since remuneration should account for specific factors of the company and market, we can estimate a high-level base line to see if PIRS deviates substantially from its peers. This outcome can help direct shareholders to ask the right question about Yoder’s incentive alignment. On average, a US small-cap has a value of $1B, creates earnings of $96M, and remunerates its CEO circa $2.7M per year. Normally I would use earnings and market cap to account for variations in performance, however, PIRS’s negative earnings reduces the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Yoder is remunerated sensibly relative to peers. On the whole, although PIRS is unprofitable, it seems like the CEO’s pay is fair.
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 Yoder 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. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
- Governance: To find out more about PIRS’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 PIRS? 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.