Jay Madhu took the reins as CEO of Oxbridge Re Holdings Limited’s (NASDAQ:OXBR) and grew market cap to US$11.75M 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. Today we will assess Madhu’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 Oxbridge Re Holdings
What has OXBR’s performance been like?
Profitability of a company is a strong indication of OXBR’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Madhu’s performance. Over the last year OXBR delivered negative earnings of -US$20.59M , compared to the previous year’s positive earnings. Moreover, OXBR hasn’t always been loss-making, with an average EPS of US$0.15 over the past five years. In the situation of unprofitability the company may be incurring a period of reinvestment and growth, or it can be a signal of some headwind. In any case, CEO compensation should be reflective of the current condition of the business. From the latest financial statments, Madhu’s total compensation more than doubled, to US$293.50K , though from a small basis.
Is OXBR’s CEO overpaid relative to the market?
Even though one size does not fit all, since compensation should be tailored to the specific company and market, we can estimate a high-level base line to see if OXBR deviates substantially from its peers. This exercise can help shareholders ask the right question about Madhu’s incentive alignment. Generally, a US small-cap is worth around $1B, creates earnings of $96M, and pays its CEO circa $2.7M per annum. Normally I would look at market cap and earnings as a proxy for performance, however, OXBR’s negative earnings lower the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Madhu is paid aptly compared to those in similar-sized companies. Overall, though OXBR is unprofitable, it seems like the CEO’s pay is fair.
You can breathe easy knowing that shareholder funds aren’t being used to overpay OXBR’s CEO. However, on the flipside, you should ask whether Madhu 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 highly recommend you to complete your research by taking a look at the following:
- Governance: To find out more about OXBR’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 OXBR? 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.