Is Ampio Pharmaceuticals Inc’s (NYSEMKT:AMPE) CEO Salary Justified?
Mike Macaluso is the CEO of Ampio Pharmaceuticals Inc (AMEX:AMPE), which has recently grown to a market capitalization of $220.23M. 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 Macaluso’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. Check out our latest analysis for Ampio Pharmaceuticals
What has AMPE’s performance been like?
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. Most recently, AMPE delivered negative earnings of -$12.1M . However, this is an improvement on prior year’s loss of -$22.5M, which may signal a turnaround since AMPE has been loss-making for the past five years, on average, with an EPS of -$0.52. Since earnings are heading towards the right direction, CEO pay should echo Macaluso’s valued-adding activities. In the same year, Macaluso’s total remuneration more than doubled, to $305,000 , although from a small basis.
Is AMPE’s CEO overpaid relative to the market?
While no standard benchmark exists, as compensation should account for specific factors of the company and market, we can evaluate a high-level benchmark to see if AMPE deviates substantially from its peers. This outcome helps investors ask the right question about Macaluso’s incentive alignment. On average, a US small-cap is worth around $1B, creates earnings of $96M, and pays its CEO circa $2.7M annually. Usually I’d use market cap and profit as factors determining performance, however, AMPE’s negative earnings lower the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Macaluso is being paid within the bounds of reasonableness. Putting everything together, although AMPE is unprofitable, it seems like the CEO’s pay is fair.
What this means for you:
Are you a shareholder? Hopefully this article has given you insight on how shareholders should think about AMPE’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. To find out more about AMPE’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? Whether Macaluso is over or underpaid should not be a deciding factor whether or not you invest in AMPE. However, the way the company is governed and policies, such as remuneration, are structured, are important considerations for an investor. The best place to start is to understand how well AMPE is placed financially. To research more about these fundamentals, I recommend you check out our simple infographic report on AMPE’s financial metrics.
PS. If you are not interested in Ampio Pharmaceuticals anymore, you can use our free platform to see my list of over 50 sustainable companies producing great returns.
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.
