Chris Atayan is the CEO of AMCON Distributing Company (NYSEMKT:DIT), which has recently grown to a market capitalization of US$52.36m. 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 Atayan’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 DIT’s earnings?Earnings is a powerful indication of DIT’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Atayan’s performance in the past year. Most recently, DIT delivered a profit of US$3.63m , which is an increase of 2.86% from its last year’s earnings of US$3.53m. This is a positive indication that DIT has strived to maintain a good track record of profitability in the face of any headwinds. Given earnings are moving the right way, CEO pay should mirror Atayan’s valued-adding activities. Over the same period Atayan’s total remuneration increased by a mere 1.18% to US$2.15m. In addition to this, Atayan’s pay is also made up of 41.63% non-cash elements, which means that fluctuations in DIT’s share price can affect the actual level of what the CEO actually collects at the end of the year.
What’s a reasonable CEO compensation?
Even though one size does not fit all, as remuneration should be tailored to the specific company and market, we can gauge a high-level yardstick to see if DIT deviates substantially from its peers. This exercise helps investors ask the right question about Atayan’s incentive alignment. On average, a US small-cap is worth around $1B, generates earnings of $96M, and remunerates its CEO at roughly $2.7M per year. Allowing for DIT’s size and performance, in terms of market cap and earnings, it appears that Atayan is paid on a similar level to other US CEOs of small-caps, on average. This could mean Atayan is paid a suitable level.
Hopefully this article has given you insight on how shareholders should think about DIT’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 DIT’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 DIT? 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.