Is Atlanticus Holdings Corporation’s (NASDAQ:ATLC) CEO Paid At A Competitive Rate?
David Hanna took the helm as Atlanticus Holdings Corporation’s (NASDAQ:ATLC) CEO and grew market cap to US$31.49M 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. I will break down Hanna’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. View our latest analysis for Atlanticus Holdings
What has been the trend in ATLC’s earnings?
Profitability of a company is a strong indication of ATLC’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Hanna’s performance. Recently, ATLC produced negative earnings of -US$40.78M , which is a further decline from prior year’s loss of -US$6.33M. Additionally, on average, ATLC has been loss-making in the past, with a 5-year average EPS of -US$0.67. During times of negative earnings, the company may be going through a period of reinvestment and growth, or it can be an indication of some headwind. In any case, CEO compensation should be reflective of the current state of the business. In the most recent financial statments, Hanna’s total compensation increased over two-fold, reaching US$1.70M . Although I couldn’t find information on the breakdown of Hanna’s pay, if some portion were non-cash items such as stocks and options, then fluctuations in ATLC’s share price can impact the actual level of what the CEO actually takes home at the end of the day.
Is ATLC overpaying the CEO?
Though no standard benchmark exists, since compensation should be tailored to the specific company and market, we can estimate a high-level thresold to see if ATLC deviates substantially from its peers. This outcome can help direct shareholders to ask the right question about Hanna’s incentive alignment. Normally, a US small-cap is worth around $1B, generates earnings of $96M, and remunerates its CEO at roughly $2.7M annually. Typically I would look at market cap and earnings as a proxy for performance, however, ATLC’s negative earnings reduces the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Hanna is remunerated sensibly relative to peers. Overall, although ATLC is loss-making, it seems like the CEO’s pay is appropriate.
Next Steps:
You can breathe easy knowing that shareholder funds aren’t being used to overpay ATLC’s CEO. However, on the flipside, you should ask whether Hanna 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. If you have not done so already, I urge you to complete your research by taking a look at the following:
Governance: To find out more about ATLC’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 ATLC? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
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.
