Is DXP Enterprises Inc’s (NASDAQ:DXPE) CEO Pay Fair?
David Little took the helm as DXP Enterprises Inc’s (NASDAQ:DXPE) CEO and grew market cap to US$814.42m recently. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. 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 Little’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 DXP Enterprises
What has DXPE’s performance been like?
DXPE 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, DXPE produced an earnings of US$25.64m , which is an increase of 73.01% from its prior year’s earnings of US$14.82m. This is a positive indication that DXPE has strived to maintain a good track record of profitability in the face of any headwinds. As profits are moving up and up, CEO pay should echo Little’s value creation for shareholders. During the same period, Little’s total compensation dropped by -17.85%, to US$1.65m. In addition to this, Little’s pay is also made up of 38.95% non-cash elements, which means that fluctuations in DXPE’s share price can move the true level of what the CEO actually receives.
What’s a reasonable CEO compensation?
Despite the fact that no standard benchmark exists, since compensation should account for specific factors of the company and market, we can estimate a high-level base line to see if DXPE deviates substantially from its peers. This outcome helps investors ask the right question about Little’s incentive alignment. On average, a US small-cap is worth around $1B, produces earnings of $96M, and remunerates its CEO circa $2.7M annually. Based on DXPE’s size and performance, in terms of market cap and earnings, it seems that Little is compensated similar to other comparable US CEOs of profitable small-caps. This could mean Little is paid a suitable level.
Next Steps:
You can breathe easy knowing that shareholder funds aren’t being used to overpay DXPE’s CEO. However, on the flipside, you should ask whether Little 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 DXPE’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 DXPE? 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 editorial-team@simplywallst.com.
