Did Chase create value?
Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Recently, BSQR delivered negative earnings of -US$6.09M , compared to the previous year’s positive earnings. Additionally, BSQR hasn’t always been loss-making, with an average EPS of US$0.08 over the past five years. During times of negative earnings, the company may be incurring a period of reinvestment and growth, or it can be a signal of some headwind. In any case, CEO compensation should mirror the current state of the business. From the latest financial statments, Chase’s total remuneration declined by a non-trivial rate of -27.02%, to US$761.26K. In addition to this, Chase’s pay is also made up of 11.10% non-cash elements, which means that variabilities in BSQR’s share price can move the actual level of what the CEO actually collects at the end of the year.What’s a reasonable CEO compensation?
Even though no standard benchmark exists, as compensation should account for specific factors of the company and market, we can evaluate a high-level thresold to see if BSQR deviates substantially from its peers. This exercise can help direct shareholders to ask the right question about Chase’s incentive alignment. On average, a US small-cap has a value of $1B, creates earnings of $96M, and remunerates its CEO at roughly $2.7M per annum. Typically I would look at market cap and earnings as a proxy for performance, however, BSQR’s negative earnings lower the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Chase is remunerated sensibly relative to peers. Overall, even though BSQR is unprofitable, it seems like the CEO’s pay is appropriate.
Next Steps:
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 Chase 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 urge you to complete your research by taking a look at the following:
- 1. Governance: To find out more about BSQR’s governance, look through our infographic report of the company’s board and management.
- 2. 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.
- 3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of BSQR? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!