Leading Cohen & Company Inc (AMEX:COHN) as the CEO, Lester Brafman took the company to a valuation of US$12.90M. 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. Today we will assess Brafman’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 Cohen
Did Brafman create value?
COHN 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. Most recently, COHN released negative earnings of -US$82.00K , compared to the previous year’s positive earnings. But on average, COHN has been loss-making in the past, with a 5-year average EPS of -US$3.10. In the situation of negative earnings, the company may be going through a period of reinvestment and growth, or it can be a signal of some headwind. In any event, CEO compensation should echo the current condition of the business. In the most recent financial report, Brafman’s total remuneration fell by -12.65%, to US$1.47M.
Is COHN overpaying the CEO?
Even though there is no cookie-cutter approach, since compensation should account for specific factors of the company and market, we can determine a high-level yardstick to see if COHN deviates substantially from its peers. This exercise can help direct shareholders to ask the right question about Brafman’s incentive alignment. Normally, a US small-cap has a value of $1B, creates earnings of $96M, and remunerates its CEO circa $2.7M per year. Normally I would look at market cap and earnings as a proxy for performance, however, COHN’s negative earnings lower the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Brafman is remunerated sensibly relative to peers. Putting everything together, even though COHN is loss-making, it seems like the CEO’s pay is appropriate.
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 Brafman’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 COHN’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 COHN? 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.