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Is Cleveland BioLabs Inc’s (NASDAQ:CBLI) CEO Incentives Align With Yours?

Casey Hall

Yakov Kogan took the reins as CEO of Cleveland BioLabs Inc’s (NASDAQ:CBLI) and grew market cap to $45.23M recently. 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. Today we will assess 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. View our latest analysis for Cleveland BioLabs

What has CBLI performance been like?

Profitability of a company is a strong indication of CBLI’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Kogan’s performance. Recently, CBLI released negative earnings of -$9.8M , which is a further decline from prior year’s loss of -$2.8M. Furthermore, on average, CBLI has been loss-making in the past, with a 5-year average EPS of -$4.9. During times of negative earnings, the company may be facing a period of reinvestment and growth, or it can be a signal of some headwind. In any event, CEO compensation should be reflective of the current condition of the business. In the most recent financial report, Kogan’s total compensation declined by a marginal -4.03%, to $287,466. Furthermore, Kogan’s pay is also comprised of non-cash items, which means that variabilities in CBLI’s share price can move the real level of what the CEO actually receives.

NasdaqCM:CBLI Income Statement Jan 2nd 18

What’s a reasonable CEO compensation?

Though one size does not fit all, since remuneration should account for specific factors of the company and market, we can evaluate a high-level base line to see if CBLI is an outlier. This outcome can help shareholders ask the right question about Kogan’s incentive alignment. On average, a US small-cap is worth around $1B, creates earnings of $96M, and remunerates its CEO at roughly $2.7M per year. Typically I would use earnings and market cap to account for variations in performance, however, CBLI’s negative earnings reduces the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Kogan is paid aptly compared to those in similar-sized companies. Putting everything together, even though CBLI is unprofitable, it seems like the CEO’s pay is reflective of the appropriate level.

What this means for you:

Are you a shareholder? Hopefully this article has given you insight on how shareholders should think about CBLI’s governance policies such as CEO pay. As an investor, you have the right to understand how the board thinks about management incentives, and also the right to vote for and against substantial CEO pay changes. Governance is a big factor in investing, and I encourage you to dig deeper into those that represent your voice on the board. To find out more about CBLI’s governance, look through our infographic report of the company’s board and management.

Are you a potential investor? In order to determine whether or not you should invest in CBLI, your thesis should be built on fundamentals. Even though CEO pay isn’t technically a key concern, it could serve as an indication as to how board members align incentives and how they think about setting policies. These issues directly impacts how CBLI makes money, and factors impacting your return on investment. To research more about these fundamentals, I recommend you check out our simple infographic report on CBLI’s financial metrics.

PS. If you are not interested in Cleveland BioLabs anymore, you can use our free platform to see my list of over 50 sustainable companies producing great returns.
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.