Bill Coskey took the helm as ENGlobal Corporation’s (NASDAQ:ENG) CEO and grew market cap to US$23.11M 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 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. See our latest analysis for ENGlobal
What has ENG’s performance been like?
Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Recently, ENG released negative earnings of -US$16.26M , which is a further decline from prior year’s loss of -US$2.25M. Additionally, on average, ENG has been loss-making in the past, with a 5-year average EPS of -US$0.18. During times of negative earnings, the company may be going through a period of reinvestment and growth, or it can be a signal of some headwind. In any event, CEO compensation should mirror the current condition of the business. From the latest financial statments, Coskey’s total remuneration dropped by -15.99%, to US$41.43K.
What’s a reasonable CEO compensation?
While no standard benchmark exists, as remuneration should account for specific factors of the company and market, we can estimate a high-level benchmark to see if ENG is an outlier. This exercise can help shareholders ask the right question about Coskey’s incentive alignment. Generally, a US small-cap is worth around $1B, produces earnings of $96M, and pays its CEO circa $2.7M per year. Normally I’d use market cap and profit as factors determining performance, however, ENG’s negative earnings reduces the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Coskey is being paid within the bounds of reasonableness. Putting everything together, even though ENG is unprofitable, it seems like the CEO’s pay is appropriate.
My conclusion is that Coskey 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. 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 ENG’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 ENG? 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.