Leading ePlus inc (NASDAQ:PLUS) as the CEO, Mark Marron took the company to a valuation of US$1.36b. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. 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 Marron’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 PLUS's earnings?Profitability of a company is a strong indication of PLUS's ability to generate returns on shareholders' funds through corporate activities. In this exercise, I will use profits as a proxy for Marron's performance. In the past year, PLUS delivered a profit of US$56.97m , which is an increase of 6.87% from its previous year's earnings of US$53.31m. This is an encouraging signal that PLUS aims to sustain a strong track record of generating profits regardless of the challenges. As profits are moving up and up, CEO pay should be reflective of Marron's value creation for shareholders. During this period Marron's total compensation rose by 16.71% to US$2.95m. Moreover, Marron's pay is also made up of 53.97% non-cash elements, which means that fluxes in PLUS'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?Though no standard benchmark exists, as compensation should account for specific factors of the company and market, we can fashion a high-level base line to see if PLUS is an outlier. This outcome can help direct shareholders to ask the right question about Marron’s incentive alignment. Normally, a US small-cap has a value of $1B, produces earnings of $96M, and pays its CEO at roughly $2.7M per year. Considering the size of PLUS in terms of market cap, as well as its performance, using earnings as a proxy, it seems that Marron is paid in-line with other US CEOs of small-caps, on average. This could mean Marron is paid a suitable level.
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 Marron 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 PLUS'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 PLUS? 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 firstname.lastname@example.org.
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.
ePlus inc., together with its subsidiaries, provides information technology (IT) solutions that enable organizations to optimize their IT environment and supply chain processes in the United States and internationally.
The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.
|Analysis Area||Score (0-6)|
Read more about these checks in the individual report sections or in our analysis model.
Excellent balance sheet and good value.