Increases to CEO Compensation Might Be Put On Hold For Now at Otonomy, Inc. (NASDAQ:OTIC)
The underwhelming share price performance of Otonomy, Inc. (NASDAQ:OTIC) in the past three years would have disappointed many shareholders. What is concerning is that despite positive EPS growth, the share price has not tracked the trend in fundamentals. Shareholders may want to question the board on the future direction of the company at the upcoming AGM on 22 June 2021. They could also influence management through voting on resolutions such as executive remuneration. Here's our take on why we think shareholders may want to be cautious of approving a raise for the CEO at the moment.
See our latest analysis for Otonomy
How Does Total Compensation For David Weber Compare With Other Companies In The Industry?
Our data indicates that Otonomy, Inc. has a market capitalization of US$134m, and total annual CEO compensation was reported as US$2.9m for the year to December 2020. Notably, that's an increase of 33% over the year before. We think total compensation is more important but our data shows that the CEO salary is lower, at US$568k.
For comparison, other companies in the industry with market capitalizations below US$200m, reported a median total CEO compensation of US$727k. This suggests that David Weber is paid more than the median for the industry. What's more, David Weber holds US$115k worth of shares in the company in their own name.
Component | 2020 | 2019 | Proportion (2020) |
Salary | US$568k | US$546k | 20% |
Other | US$2.3m | US$1.6m | 80% |
Total Compensation | US$2.9m | US$2.2m | 100% |
On an industry level, around 28% of total compensation represents salary and 72% is other remuneration. In Otonomy's case, non-salary compensation represents a greater slice of total remuneration, in comparison to the broader industry. If non-salary compensation dominates total pay, it's an indicator that the executive's salary is tied to company performance.
A Look at Otonomy, Inc.'s Growth Numbers
Over the past three years, Otonomy, Inc. has seen its earnings per share (EPS) grow by 24% per year. Its revenue is down 64% over the previous year.
This demonstrates that the company has been improving recently and is good news for the shareholders. The lack of revenue growth isn't ideal, but it is the bottom line that counts most in business. Historical performance can sometimes be a good indicator on what's coming up next but if you want to peer into the company's future you might be interested in this free visualization of analyst forecasts.
Has Otonomy, Inc. Been A Good Investment?
With a total shareholder return of -46% over three years, Otonomy, Inc. shareholders would by and large be disappointed. This suggests it would be unwise for the company to pay the CEO too generously.
To Conclude...
The fact that shareholders are sitting on a loss on the value of their shares in the past few years is certainly disconcerting. The fact that the stock price hasn't grown along with earnings may indicate that other issues may be affecting that stock. If there are some unknown variables that are influencing the stock's price, surely shareholders would have some concerns. These concerns should be addressed at the upcoming AGM, where shareholders can question the board and evaluate if their judgement and decision making is still in line with their expectations.
We can learn a lot about a company by studying its CEO compensation trends, along with looking at other aspects of the business. We identified 4 warning signs for Otonomy (3 can't be ignored!) that you should be aware of before investing here.
Important note: Otonomy is an exciting stock, but we understand investors may be looking for an unencumbered balance sheet and blockbuster returns. You might find something better in this list of interesting companies with high ROE and low debt.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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