Geert Kersten took the reins as CEO of CEL-SCI Corporation’s (AMEX:CVM) and grew market cap to $23.70M recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. 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 Kersten’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 CEL-SCI
What has CVM performance been like?
CVM 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, CVM delivered negative earnings of -$10.5M . But this is an improvement on prior year’s loss of -$20.2M, which may signal a turnaround since CVM has been loss-making for the past five years, on average, with an EPS of -$13.52. As profits are moving up and up, CEO pay should echo Kersten’s value creation for shareholders. During this period Kersten’s total remuneration increased by a mere 0.67% to $629,313. Furthermore, Kersten’s pay is also made up of 35.28% non-cash elements, which means that fluxes in CVM’s share price can affect the true level of what the CEO actually receives.
Is CVM’s CEO overpaid relative to the market?
Though no standard benchmark exists, since remuneration should be tailored to the specific company and market, we can determine a high-level yardstick to see if CVM is an outlier. This exercise can help direct shareholders to ask the right question about Kersten’s incentive alignment. Normally, a US small-cap has a value of $1B, generates earnings of $96M, and remunerates its CEO circa $2.7M per annum. Normally I’d use market cap and profit as factors determining performance, however, CVM’s negative earnings lower the effectiveness of this method. Given the range of pay for small-cap executives, it seems like Kersten is being paid within the bounds of reasonableness. Overall, even though CVM is loss-making, it seems like the CEO’s pay is fair.
What this means for you:
Are you a shareholder? My conclusion is that Kersten is not being overpaid. But your role as a shareholder should not end here. As above, this is a relatively simplistic calculation using high-level benchmarket. Proactive shareholders should question their representatives (i.e. the board of directors) how they think about the CEO’s incentive alignment with shareholders and how they balance this with retention and reward. To find out more about CVM’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in CVM, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. To research more about these fundamentals, I recommend you check out our simple infographic report on CVM’s financial metrics.
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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.