Leading Cadiz Inc (NASDAQ:CDZI) as the CEO, Scott Slater took the company to a valuation of US$312.26M. 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 Slater’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 Cadiz
What has CDZI’s performance been like?
CDZI can create value to shareholders by increasing its profitability, which in turn is reflected into the share price and the investor’s ability to sell their shares at higher capital gains. In the past year, CDZI released negative earnings of -US$33.86M , which is a further decline from prior year’s loss of -US$26.34M. Furthermore, on average, CDZI has been loss-making in the past, with a 5-year average EPS of -US$1.33. In the situation of unprofitability the company may be incurring a period of reinvestment and growth, or it can be an indication of some headwind. Regardless, CEO compensation should represent the current state of the business. From the latest financial report, Slater’s total remuneration grew by 25.00% to US$300.00K. In addition to this, Slater’s pay is also comprised of non-cash elements, which means that fluctuations in CDZI’s share price can move the real level of what the CEO actually collects at the end of the year.
Is CDZI’s CEO overpaid relative to the market?
Even though there is no cookie-cutter approach, as compensation should account for specific factors of the company and market, we can fashion a high-level yardstick to see if CDZI is an outlier. This outcome helps investors ask the right question about Slater’s incentive alignment. Normally, a US small-cap is worth around $1B, produces earnings of $96M, and pays its CEO circa $2.7M per annum. Usually I would look at market cap and earnings as a proxy for performance, however, CDZI’s negative earnings lower the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Slater is being paid within the bounds of reasonableness. Overall, though CDZI is loss-making, it seems like the CEO’s pay is sound.
In the upcoming year’s AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose an executive pay raise. Will this raise take Slater’s pay beyond the bound of reasonableness, or will it help in retaining the talented executive? Being proactive in governance decisions is a key part to investing, and collectively, investors can make a big difference. 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 CDZI’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 CDZI? 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.