Did Kay create value?Earnings is a powerful indication of IBIO’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Kay’s performance in the past year. Over the last year IBIO released negative earnings of -US$16.19M , which is a further decline from prior year’s loss of -US$12.00M. Furthermore, on average, IBIO has been loss-making in the past, with a 5-year average EPS of -US$0.15. In the situation of unprofitability the company may be facing a period of reinvestment and growth, or it can be an indication of some headwind. Regardless, CEO compensation should represent the current condition of the business. In the latest report, Kay’s total remuneration dropped by a significant rate of -46.52%, to US$417.82K. In addition to this, Kay’s pay is also comprised of non-cash elements, which means that variabilities in IBIO’s share price can move the true level of what the CEO actually takes home at the end of the day.
What’s a reasonable CEO compensation?
Despite the fact that one size does not fit all, as compensation should account for specific factors of the company and market, we can determine a high-level benchmark to see if IBIO deviates substantially from its peers. This outcome helps investors ask the right question about Kay’s incentive alignment. On average, a US small-cap is worth around $1B, creates earnings of $96M, and pays its CEO at roughly $2.7M annually. Normally I would look at market cap and earnings as a proxy for performance, however, IBIO’s negative earnings lower the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Kay is remunerated sensibly relative to peers. Overall, although IBIO is loss-making, it seems like the CEO’s pay is appropriate.
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 Kay’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:
- Governance: To find out more about IBIO’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 IBIO? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!