Does Vascular Biogenics Ltd’s (NASDAQ:VBLT) CEO Pay Compared Well With Peers?
Dror Harats is the CEO of Vascular Biogenics Ltd (NASDAQ:VBLT), which has recently grown to a market capitalization of $222.93M. 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 Harats’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 Vascular Biogenics
Did Harats create value?
Profitability of a company is a strong indication of VBLT’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Harats’s performance. Recently, VBLT released negative earnings of -$21.3M , which is a further decline from prior year’s loss of -$14.4M. Furthermore, on average, VBLT has been loss-making in the past, with a 5-year average EPS of -$3.58. During times of unprofitability the company may be facing a period of reinvestment and growth, or it can be an indication of some headwind. In any event, CEO compensation should be reflective of the current state of the business. In the most recent report, Harats’s total compensation declined by more than half of the prior year’s level, to $1,983,000. Moreover, Harats’s pay is also made up of non-cash items, which means that fluxes in VBLT’s share price can impact the real level of what the CEO actually takes home at the end of the day.
What’s a reasonable CEO compensation?
Even though one size does not fit all, as compensation should be tailored to the specific company and market, we can estimate a high-level yardstick to see if VBLT deviates substantially from its peers. This exercise can help shareholders ask the right question about Harats’s incentive alignment. Generally, a US small-cap is worth around $1B, creates earnings of $96M, and remunerates its CEO at roughly $2.7M per annum. Normally I’d use market cap and profit as factors determining performance, however, VBLT’s negative earnings lower the effectiveness of this method. Given the range of pay for small-cap executives, it seems like Harats is paid aptly compared to those in similar-sized companies. Putting everything together, even though VBLT is loss-making, it seems like the CEO’s pay is fair.
Next Steps:
In the upcoming year’s AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose an executive pay raise. Will this raise take Harats’s pay beyond the bound of reasonableness, or will it help in retaining the talented executive? Being proactive in governance decisions is a key part to investing, and collectively, investors can make a big difference. 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 VBLT? 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.
