Eitan Oppenhaim took the helm as Nova Measuring Instruments Ltd's (NASDAQ:NVMI) CEO and grew market cap to US$791.22m recently. 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. Today we will assess Oppenhaim’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.
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What has been the trend in NVMI's earnings?
Earnings is a powerful indication of NVMI's ability to invest shareholders' funds and generate returns. Therefore I will use earnings as a proxy of Oppenhaim's performance in the past year. Over the last year NVMI produced a profit of US$45.66m , which is an increase of 50.67% from its prior year's earnings of US$30.30m. This is an encouraging signal that NVMI aims to sustain a strong track record of generating profits regardless of the challenges. As profits are moving up and up, CEO pay should represent Oppenhaim's hard work. In the same year, Oppenhaim's total remuneration dropped by a marginal -0.31%, to US$1.42m. In addition to this, Oppenhaim's pay is also made up of 35.12% non-cash elements, which means that variabilities in NVMI's share price can affect the actual level of what the CEO actually receives.Is NVMI's CEO overpaid relative to the market?
Though no standard benchmark exists, since compensation should be tailored to the specific company and market, we can gauge a high-level benchmark to see if NVMI is an outlier. This exercise can help shareholders ask the right question about Oppenhaim’s incentive alignment. Typically, a US small-cap has a value of $1B, creates earnings of $96M, and pays its CEO at roughly $2.7M per year. Allowing for the size of NVMI in terms of market cap, as well as its performance, using earnings as a proxy, it seems that Oppenhaim is paid on a similar level to other comparable US CEOs of profitable small-caps. This indicates that Oppenhaim’s pay is fair.Next Steps:
Hopefully this article has given you insight on how shareholders should think about NVMI'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 highly recommend you to complete your research by taking a look at the following:
- Governance: To find out more about NVMI'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 NVMI? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
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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 editorial-team@simplywallst.com.
Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.