Bob Palle took the reins as CEO of Blonder Tongue Laboratories Inc’s (AMEX:BDR) and grew market cap to US$9.53M 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 Palle’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 Blonder Tongue Laboratories
Did Palle create value?
Earnings is a powerful indication of BDR’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Palle’s performance in the past year. Over the last year BDR released negative earnings of -US$384.00K . But this is an improvement on prior year’s loss of -US$1.19M, which may signal a turnaround since BDR has been loss-making for the past five years, on average, with an EPS of -US$0.40. Given earnings are moving the right way, CEO pay should mirror Palle’s valued-adding activities. During the same period, Palle’s total remuneration increased over two-fold, reaching US$286.69K , but off a low base. Moreover, Palle’s pay is also made up of 23.16% non-cash elements, which means that fluctuations in BDR’s share price can move the true level of what the CEO actually collects at the end of the year.
Is BDR overpaying the CEO?
Even though one size does not fit all, since remuneration should account for specific factors of the company and market, we can determine a high-level yardstick to see if BDR deviates substantially from its peers. This outcome can help shareholders ask the right question about Palle’s incentive alignment. Generally, a US small-cap is worth around $1B, generates earnings of $96M, and pays its CEO at roughly $2.7M per year. Typically I would look at market cap and earnings as a proxy for performance, however, BDR’s negative earnings lower the effectiveness of this method. Given the range of pay for small-cap executives, it seems like Palle is paid aptly compared to those in similar-sized companies. Putting everything together, although BDR is loss-making, it seems like the CEO’s pay is appropriate.
My conclusion is that Palle 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 highly recommend you to complete your research by taking a look at the following:
- Governance: To find out more about BDR’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 BDR? 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.