Leading ENGlobal Corporation (NASDAQ:ENG) as the CEO, Bill Coskey took the company to a valuation of $23.66M. 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 Coskey’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 ENGlobal
What has been the trend in ENG’s earnings?
Profitability of a company is a strong indication of ENG’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Coskey’s performance. Over the last year ENG delivered negative earnings of -$14.4M , compared to the previous year’s positive earnings. However, on average, ENG has been loss-making in the past, with a 5-year average EPS of -$0.18. 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 state of the business. In the latest financial report, Coskey’s total compensation fell by -15.98%, to $41,430.
What’s a reasonable CEO compensation?
Despite the fact that no standard benchmark exists, as compensation should account for specific factors of the company and market, we can gauge a high-level base line to see if ENG deviates substantially from its peers. This outcome helps investors ask the right question about Coskey’s incentive alignment. Generally, a US small-cap has a value of $1B, creates earnings of $96M, and remunerates its CEO at roughly $2.7M per year. Usually I’d use market cap and profit as factors determining performance, however, ENG’s negative earnings reduces the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Coskey is remunerated sensibly relative to peers. Overall, although ENG is loss-making, it seems like the CEO’s pay is fair.
What this means for you:
Are you a shareholder? 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 Coskey’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. To find out more about ENG’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 Coskey’s incentives are well-aligned with ENG’s shareholders, it is certainly not sufficient to base your investment decision solely on this factor. Whether the company is fundamentally strong depends on ENG’s financial health and its future outlook. To research more about these fundamentals, I recommend you check out our simple infographic report on ENG’s financial metrics.
PS. If you are not interested in ENGlobal 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.