Brian O’Malley took the reins as CEO of Bravo Brio Restaurant Group Inc’s (NASDAQ:BBRG) and grew market cap to US$61.94M 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 O’Malley’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 Bravo Brio Restaurant Group
What has BBRG’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. Recently, BBRG produced negative earnings of -US$15.39M . However, this is an improvement on prior year’s loss of -US$76.24M, though BBRG hasn’t always been loss-making, given its average EPS of US$0.10 over the past five years. As profits are moving up and up, CEO pay should be reflective of O’Malley’s hard work. Over the same period O’Malley’s total remuneration dropped by -16.34%, to US$545.00K.
Is BBRG’s CEO overpaid relative to the market?
Though there is no cookie-cutter approach, as compensation should be tailored to the specific company and market, we can estimate a high-level benchmark to see if BBRG is an outlier. This outcome helps investors ask the right question about O’Malley’s incentive alignment. On average, a US small-cap is worth around $1B, produces earnings of $96M, and pays its CEO circa $2.7M per annum. Normally I would look at market cap and earnings as a proxy for performance, however, BBRG’s negative earnings reduces the usefulness of my formula. Given the range of pay for small-cap executives, it seems like O’Malley is paid aptly compared to those in similar-sized companies. On the whole, even though BBRG is unprofitable, it seems like the CEO’s pay is appropriate.
You can breathe easy knowing that shareholder funds aren’t being used to overpay BBRG’s CEO. However, on the flipside, you should ask whether O’Malley 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 BBRG’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 BBRG? 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.