Does Cinedigm Corp’s (NASDAQ:CIDM) CEO Pay Matter?
Chris McGurk took the helm as Cinedigm Corp’s (NASDAQ:CIDM) CEO and grew market cap to US$52.42M 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. Today we will assess McGurk’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 Cinedigm
What has CIDM’s performance been like?
Profitability of a company is a strong indication of CIDM’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for McGurk’s performance. In the past year, CIDM produced negative earnings of -US$28.51M , which is a further decline from prior year’s loss of -US$11.90M. Additionally, on average, CIDM has been loss-making in the past, with a 5-year average EPS of -US$3.77. In the situation of negative earnings, the company may be going through a period of reinvestment and growth, or it can be a sign of some headwind. In any case, CEO compensation should emulate the current state of the business. In the most recent financial statments, McGurk’s total remuneration grew by 34.74% to US$1.18M.
Is CIDM overpaying the CEO?
While one size does not fit all, as remuneration should account for specific factors of the company and market, we can determine a high-level yardstick to see if CIDM is an outlier. This exercise can help shareholders ask the right question about McGurk’s incentive alignment. Generally, a US small-cap has a value of $1B, creates earnings of $96M, and pays its CEO at roughly $2.7M per annum. Typically I would use earnings and market cap to account for variations in performance, however, CIDM’s negative earnings reduces the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like McGurk is remunerated sensibly relative to peers. Overall, even though CIDM is loss-making, it seems like the CEO’s pay is sound.
Next Steps:
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 McGurk 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. 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 CIDM’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 CIDM? 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.
