Alvin Murstein took the helm as Medallion Financial Corp’s (NASDAQ:MFIN) CEO and grew market cap to US$118.06M recently. 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 Murstein’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. Check out our latest analysis for Medallion Financial
What has been the trend in MFIN’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. Most recently, MFIN delivered a profit of US$278.00K , which is a rather significant decline from its prior year’s profit (excluding extraordinary items) of US$23.52M. However, MFIN has strived to sustain a strong track record of generating profits, given its average EPS of US$1.02 over the past couple of years. During times of diminishing earnings, the company may be facing a period of reinvestment and growth, or it can be a sign of some headwind. In any case, CEO compensation should mirror the current state of the business. From the latest financial report, Murstein’s total remuneration rose by a mere 1.35% to US$1.92M. Moreover, Murstein’s pay is also made up of 7.82% non-cash elements, which means that variabilities in MFIN’s share price can affect the true level of what the CEO actually receives.
Is MFIN overpaying the CEO?
Despite the fact that no standard benchmark exists, as compensation should account for specific factors of the company and market, we can gauge a high-level thresold to see if MFIN deviates substantially from its peers. This exercise can help direct shareholders to ask the right question about Murstein’s incentive alignment. Typically, a US small-cap is worth around $1B, produces earnings of $96M, and pays its CEO at roughly $2.7M per year. Based on the size of MFIN in terms of market cap, as well as its performance, using earnings as a proxy, it seems that Murstein is paid on a similar level to the average US small-cap CEO This may mean that MFIN is appropriately compensating its CEO.
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 Murstein 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 MFIN’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 MFIN? 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.