Mark Baum is the CEO of Imprimis Pharmaceuticals Inc (NASDAQ:IMMY), which has recently grown to a market capitalization of $35.53M. 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 Baum’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 Imprimis Pharmaceuticals
What has IMMY’s performance been like?
Profitability of a company is a strong indication of IMMY’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Baum’s performance. Most recently, IMMY released negative earnings of -$15.3M . However, this is an improvement on prior year’s loss of -$18.1M, which may signal a turnaround since IMMY has been loss-making for the past five years, on average, with an EPS of -$1.72. Given earnings are moving the right way, CEO pay should represent Baum’s hard work. During this period Baum’s total compensation fell by more than half of the prior year’s level, to $3,153,822.
Is IMMY overpaying the CEO?
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 IMMY deviates substantially from its peers. This exercise can help shareholders ask the right question about Baum’s incentive alignment. Normally, a US small-cap is worth around $1B, produces earnings of $96M, and pays its CEO at roughly $2.7M per annum. Typically I would look at market cap and earnings as a proxy for performance, however, IMMY’s negative earnings reduces the effectiveness of this method. Given the range of pay for small-cap executives, it seems like Baum’s pay is above other similar companies.
What this means for you:
Are you a shareholder? IMMY may be paying its CEO above-market rates due to many reasons – retention, reward, or inflated non-cash components of total pay. However, shareholders also should be aware of what the appropriate level is. Boards should be transparent with how they structure CEO pay given that there should be nothing to hide in public companies. Hopefully this analysis has given you the basis for questioning the next CEO pay raise. To find out more about IMMY’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 Baum’s incentives are well-aligned with IMMY’s shareholders, it is certainly not sufficient to base your investment decision solely on this factor. Whether the company is fundamentally strong depends on IMMY’s financial health and its future outlook. To research more about these fundamentals, I recommend you check out our simple infographic report on IMMY’s financial metrics.
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The author is an independent contributor and at the time of publication had no position in the stocks mentioned.