Yakov Kogan took the helm as Cleveland BioLabs Inc’s (NASDAQ:CBLI) CEO and grew market cap to US$33.22M recently. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. 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 Kogan’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. See our latest analysis for Cleveland BioLabs
What has CBLI’s performance been like?
CBLI 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. Recently, CBLI released negative earnings of -US$9.71M , which is a further decline from prior year’s loss of -US$2.66M. Additionally, on average, CBLI has been loss-making in the past, with a 5-year average EPS of -US$4.17. During times of negative earnings, the company may be incurring a period of reinvestment and growth, or it can be a signal of some headwind. In any case, CEO compensation should represent the current state of the business. In the latest financial statments, Kogan’s total compensation declined by a trivial -0.23%, to US$286.80K. Moreover, Kogan’s pay is also made up of non-cash items, which means that variabilities in CBLI’s share price can affect the true level of what the CEO actually collects at the end of the year.
Is CBLI overpaying the CEO?
Though there is no cookie-cutter approach, since compensation should account for specific factors of the company and market, we can fashion a high-level base line to see if CBLI deviates substantially from its peers. This outcome can help shareholders ask the right question about Kogan’s incentive alignment. Normally, a US small-cap has a value of $1B, generates earnings of $96M, and pays its CEO at roughly $2.7M per year. Typically I’d use market cap and profit as factors determining performance, however, CBLI’s negative earnings reduces the effectiveness of this method. Given the range of pay for small-cap executives, it seems like Kogan is paid aptly compared to those in similar-sized companies. On the whole, although CBLI is loss-making, it seems like the CEO’s pay is sound.
CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Is Kogan remunerated appropriately based on other factors we have not covered today? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours. 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 CBLI’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 CBLI? 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.