Yitzhak Nissan took the reins as CEO of Eltek Ltd’s (NASDAQ:ELTK) and grew market cap to $8.50M recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. I will break down Nissan’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 Eltek
What has been the trend in ELTK’s earnings?
Profitability of a company is a strong indication of ELTK’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Nissan’s performance. Most recently, ELTK released negative earnings of -$6.1M , which is a further decline from prior year’s loss of -$0.4M. Though, ELTK hasn’t always been loss-making, with an average EPS of $0.03 over the past five years. In the situation of unprofitability the company may be facing a period of reinvestment and growth, or it can be a signal of some headwind. In any case, CEO compensation should emulate the current condition of the business. In the latest financial report, Nissan’s total remuneration remained stable at $278,069 since the previous year.
Is ELTK’s CEO overpaid relative to the market?
While one size does not fit all, since compensation should be tailored to the specific company and market, we can determine a high-level thresold to see if ELTK deviates substantially from its peers. This exercise helps investors ask the right question about Nissan’s incentive alignment. Generally, a US small-cap has a value of $1B, generates earnings of $96M, and pays its CEO circa $2.7M per annum. Normally I would use earnings and market cap to account for variations in performance, however, ELTK’s negative earnings reduces the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Nissan is being paid within the bounds of reasonableness. On the whole, even though ELTK is unprofitable, it seems like the CEO’s pay is fair.
What this means for you:
Are you a shareholder? My conclusion is that Nissan is not being overpaid. But your role as a shareholder should not end here. As above, this is a relatively simplistic calculation using high-level benchmarket. Proactive shareholders should question their representatives (i.e. the board of directors) how they think about the CEO’s incentive alignment with shareholders and how they balance this with retention and reward. To find out more about ELTK’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? Although remuneration can be a useful gauge of whether Nissan’s incentives are well-aligned with ELTK’s shareholders, it is certainly not sufficient to base your investment decision solely on this factor. Whether the company is fundamentally strong depends on ELTK’s financial health and its future outlook. To research more about these fundamentals, I recommend you check out our simple infographic report on ELTK’s financial metrics.
PS. If you are not interested in Eltek anymore, you can use our free platform to see my list of over 50 sustainable companies producing great returns.
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.