Leading First United Corporation (NASDAQ:FUNC) as the CEO, Carissa Rodeheaver took the company to a valuation of US$146.61m. 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 Rodeheaver’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.
What has been the trend in FUNC’s earnings?
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. In the past year, FUNC released a profit of US$6.05m compared to its prior year’s earnings of US$6.33m – a decline of -4.39%. However, FUNC has strived to maintain a good track record of profitability, given its average EPS of US$0.74 over the past couple of years. During times of falling profits, the company may be going through a period of reinvestment and growth, or it can be a signal of some headwind. Regardless, CEO compensation should be reflective of the current condition of the business. In the latest financial statments, Rodeheaver’s total compensation rose by 10.52% to US$375.25k.
Is FUNC overpaying the CEO?
Even though one size does not fit all, since remuneration should be tailored to the specific company and market, we can fashion a high-level thresold to see if FUNC is an outlier. This exercise helps investors ask the right question about Rodeheaver’s incentive alignment. On average, a US small-cap is worth around $1B, creates earnings of $96M, and pays its CEO at roughly $2.7M per annum. Based on FUNC’s size and performance, in terms of market cap and earnings, it appears that Rodeheaver is paid lower than other US CEOs of small-caps, on average.
My conclusion is that Rodeheaver 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 FUNC’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 FUNC? 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 past 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. For errors that warrant correction please contact the editor at email@example.com.