Leading Optical Cable Corporation (NASDAQ:OCC) as the CEO, Neil Wilkin took the company to a valuation of $17.90M. 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. Today we will assess Wilkin’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. View our latest analysis for Optical Cable
Did Wilkin create value?
OCC 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, OCC produced negative earnings of -$1.7M . But this is an improvement on prior year’s loss of -$1.8M, which may signal a turnaround since OCC has been loss-making for the past five years, on average, with an EPS of -$0.08. Given earnings are moving the right way, CEO pay should represent Wilkin’s value creation for shareholders. During this period Wilkin’s total compensation fell by more than half of the prior year’s level, to $425,389. In addition to this, Wilkin’s pay is also made up of 49.39% non-cash elements, which means that fluxes in OCC’s share price can affect the real level of what the CEO actually takes home at the end of the day.
What’s a reasonable CEO compensation?
Despite the fact that one size does not fit all, as remuneration should be tailored to the specific company and market, we can gauge a high-level thresold to see if OCC is an outlier. This outcome can help shareholders ask the right question about Wilkin’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 use earnings and market cap to account for variations in performance, however, OCC’s negative earnings reduces the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Wilkin is paid aptly compared to those in similar-sized companies. Overall, although OCC is loss-making, it seems like the CEO’s pay is sound.
You can breathe easy knowing that shareholder funds aren’t being used to overpay OCC’s CEO. However, on the flipside, you should ask whether Wilkin is appropriately remunerated on the basis of retention. Its important for shareholders to be active in voting governance decisions, as board members are only representatives of investors’ voices. If you have not done so already, I urge you to complete your research by taking a look at the following:
1. Governance: To find out more about WOW’s governance, look through our infographic report of the company’s board and management.
2. 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.
3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of OCC? 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.