Eric McAfee took the helm as Aemetis Inc’s (NASDAQ:AMTX) CEO and grew market cap to $12.69M recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. I will break down McAfee’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. See our latest analysis for Aemetis
Did McAfee create value?
Earnings is a powerful indication of AMTX’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of McAfee’s performance in the past year. Most recently, AMTX produced negative earnings of -$24.2M , which is a further decline from prior year’s loss of -$20.6M. Moreover, on average, AMTX has been loss-making in the past, with a 5-year average EPS of -$0.93. In the situation of negative earnings, the company may be facing a period of reinvestment and growth, or it can be an indication of some headwind. In any event, CEO compensation should emulate the current condition of the business. In the latest report, McAfee’s total compensation grew by 15.95% to $290,000.
What’s a reasonable CEO compensation?
Despite the fact that one size does not fit all, since remuneration should account for specific factors of the company and market, we can estimate a high-level thresold to see if AMTX is an outlier. This outcome can help shareholders ask the right question about McAfee’s incentive alignment. On average, a US small-cap has a value of $1B, creates earnings of $96M, and pays its CEO at roughly $2.7M per year. Typically I’d use market cap and profit as factors determining performance, however, AMTX’s negative earnings reduces the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like McAfee is being paid within the bounds of reasonableness. Putting everything together, although AMTX is unprofitable, it seems like the CEO’s pay is appropriate.
What this means for you:
Are you a shareholder? You can breathe easy knowing that shareholder funds aren’t being used to overpay AMTX’s CEO. However, on the flipside, you should ask whether McAfee is appropriately remunerated on the basis of retention. Its important for shareholders to be active in voting governance decisions, as board members are only representatives of investors’ voices. To find out more about AMTX’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? In order to determine whether or not you should invest in AMTX, your thesis should be built on fundamentals. Even though CEO pay isn’t technically a key concern, it could serve as an indication as to how board members align incentives and how they think about setting policies. These issues directly impacts how AMTX makes money, and factors impacting your return on investment. To research more about these fundamentals, I recommend you check out our simple infographic report on AMTX’s financial metrics.
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To help readers see pass 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.