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Is GWG Holdings Inc’s (GWGH) CEO Incentives Align With Yours?

Michael Crabtree

Jon Sabes has been at the helm as CEO of GWG Holdings Inc (NASDAQ:GWGH), which has grown to a market capitalization of USD$57.01M. 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 Sabes’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 GWG Holdings

What has GWGH performance been like?

Profitability of a company is a strong indication of GWGH’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Sabes’s performance. Over the last year GWGH produced negative earnings of -$16M , which is a further decline from prior year’s loss of -$6M. Furthermore, on average, GWGH has been loss-making in the past, with a 5-year average EPS of -$0.49. During times of unprofitability the company may be going through a period of reinvestment and growth, or it can be a signal of some headwind. In any case, CEO compensation should mirror the current state of the business. In the latest report, Sabes’s total remuneration grew by 84.57% to $1,175,776.

NasdaqCM:GWGH Income Statement Nov 10th 17

Is GWGH’s CEO overpaid relative to the market?

Despite the fact that no standard benchmark exists, since remuneration should be tailored to the specific company and market, we can gauge a high-level yardstick to see if GWGH is an outlier. This exercise helps investors ask the right question about Sabes’s incentive alignment. Generally, a US small-cap has a value of $1B, generates earnings of $96M, and remunerates its CEO circa $2.7M per year. Usually I would look at market cap and earnings as a proxy for performance, however, GWGH’s negative earnings lower the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Sabes is remunerated sensibly relative to peers. On the whole, although GWGH is unprofitable, it seems like the CEO’s pay is reflective of the appropriate level.

What this means for you:

Are you a shareholder? CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Is Sabes remunerated appropriately based on other factors we have not covered today? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours. To find out more about GWGH’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 Sabes’s incentives are well-aligned with GWGH’s shareholders, it is certainly not sufficient to base your investment decision solely on this factor. Whether the company is fundamentally strong depends on GWGH’s financial health and its future outlook. To research more about these fundamentals, I recommend you check out our simple infographic report on GWGH’s financial metrics.

PS. If you are not interested in GWG Holdings 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.