Francois Michelon took the helm as ENDRA Life Sciences Inc’s (NASDAQ:NDRA) CEO and grew market cap to USD$15.75M 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 Michelon’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 NDRA
Did Michelon create value?
Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Recently, NDRA delivered negative earnings of -$3.8M , which is a further decline from prior year’s loss of -$2.5M. Additionally, on average, NDRA has been loss-making in the past, with a 5-year average EPS of -$3.48. In the situation of negative earnings, the company may be facing a period of reinvestment and growth, or it can be an indication of some headwind. In any case, CEO compensation should be reflective of the current state of the business. In the most recent financial statments, Michelon’s total compensation dropped by a substantial rate of -38.32%, to $262,152.
Is NDRA’s CEO overpaid relative to the market?
While one size does not fit all, since remuneration should be tailored to the specific company and market, we can determine a high-level base line to see if NDRA is an outlier. This exercise can help direct shareholders to ask the right question about Michelon’s incentive alignment. On average, a US small-cap has a value of $1B, creates earnings of $96M, and remunerates its CEO at roughly $2.7M per year. Usually I would look at market cap and earnings as a proxy for performance, however, NDRA’s negative earnings reduces the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Michelon is being paid within the bounds of reasonableness. Overall, though NDRA is loss-making, it seems like the CEO’s pay is appropriate.
What this means for you:
Are you a shareholder? 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 Michelon 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. To find out more about NDRA’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? Although remuneration can be a useful gauge of whether Michelon’s incentives are well-aligned with NDRA’s shareholders, it is certainly not sufficient to base your investment decision solely on this factor. Whether the company is fundamentally strong depends on NDRA’s financial health and its future outlook. To research more about these fundamentals, I recommend you check out our simple infographic report on NDRA’s financial metrics.
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The author is an independent contributor and at the time of publication had no position in the stocks mentioned.