Leading China Auto Logistics Inc (NASDAQ:CALI) as the CEO, Shiping Tong took the company to a valuation of $18.83M. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. 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 Tong’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 China Auto Logistics
Did Tong create value?
Earnings is a powerful indication of CALI’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Tong’s performance in the past year. Recently, CALI released negative earnings of -$1.3M . However, this is an improvement on prior year’s loss of -$8.8M, which may signal a turnaround since CALI has been loss-making for the past five years, on average, with an EPS of -$0.75. As profits are moving up and up, CEO pay should mirror Tong’s value creation for shareholders. During this period Tong’s total remuneration declined by -6.39%, to $54,192.
Is CALI’s CEO overpaid relative to the market?
Though one size does not fit all, as remuneration should account for specific factors of the company and market, we can gauge a high-level benchmark to see if CALI is an outlier. This exercise can help shareholders ask the right question about Tong’s incentive alignment. Typically, a US small-cap is worth around $1B, creates earnings of $96M, and pays its CEO circa $2.7M per annum. Normally I’d use market cap and profit as factors determining performance, however, CALI’s negative earnings reduces the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Tong is remunerated sensibly relative to peers. On the whole, even though CALI is loss-making, it seems like the CEO’s pay is appropriate.
You can breathe easy knowing that shareholder funds aren’t being used to overpay CALI’s CEO. However, on the flipside, you should ask whether Tong 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 highly recommend you to complete your research by taking a look at the following:
- 1. Governance: To find out more about WOW’s governance, look through our infographic report of the company’s board and management.
- 2. 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.
- 3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of CALI? 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.