Tom Pickens took the reins as CEO of Astrotech Corporation’s (NASDAQ:ASTC) and grew market cap to US$8.06M recently. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. 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 Pickens’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 Astrotech
What has ASTC’s performance been like?
ASTC 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. In the past year, ASTC produced negative earnings of -US$11.76M . But this is an improvement on prior year’s loss of -US$12.28M, which may signal a turnaround since ASTC has been loss-making for the past five years, on average, with an EPS of -US$1.83. Since earnings are heading towards the right direction, CEO pay should be reflective of Pickens’s value creation for shareholders. In the same year, Pickens’s total remuneration rose by a mere 3.86% to US$605.98K. In addition to this, Pickens’s pay is also made up of 13.12% non-cash elements, which means that fluctuations in ASTC’s share price can impact the real level of what the CEO actually receives.
Is ASTC’s CEO overpaid relative to the market?
Even though there is no cookie-cutter approach, as compensation should be tailored to the specific company and market, we can evaluate a high-level yardstick to see if ASTC is an outlier. This outcome helps investors ask the right question about Pickens’s incentive alignment. Generally, a US small-cap is worth around $1B, creates earnings of $96M, and remunerates its CEO circa $2.7M per annum. Usually I would use earnings and market cap to account for variations in performance, however, ASTC’s negative earnings lower the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Pickens is paid aptly compared to those in similar-sized companies. Putting everything together, although ASTC is unprofitable, it seems like the CEO’s pay is reflective of the appropriate level.
My conclusion is that Pickens 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. 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 ASTC’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 ASTC? 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.