Leading Independent Bank Corporation (NASDAQ:IBCP) as the CEO, Brad Kessel took the company to a valuation of US$608.60m. 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. Today we will assess Kessel’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.
What has been the trend in IBCP’s earnings?
IBCP can create value to shareholders by increasing its profitability, which in turn is reflected into the share price and the investor’s ability to sell their shares at higher capital gains. In the past year, IBCP produced an earnings of US$26.55m , which is an increase of 10.01% from its previous year’s earnings of US$24.13m. This is an encouraging signal that IBCP aims to sustain a strong track record of generating profits regardless of the challenges. As profits are moving up and up, CEO pay should echo Kessel’s value creation for shareholders. In the same year, Kessel’s total remuneration grew by 5.96% to US$993.62k. Moreover, Kessel’s pay is also made up of 23.20% non-cash elements, which means that fluctuations in IBCP’s share price can impact the real level of what the CEO actually receives.
Is IBCP overpaying the CEO?
While there is no cookie-cutter approach, since remuneration should account for specific factors of the company and market, we can estimate a high-level base line to see if IBCP is an outlier. This exercise helps investors ask the right question about Kessel’s incentive alignment. Typically, a US small-cap is worth around $1B, generates earnings of $96M, and remunerates its CEO at roughly $2.7M annually. Based on the size of IBCP in terms of market cap, as well as its performance, using earnings as a proxy, it appears that Kessel is being paid well below other similar US CEOs in the small-cap industry.
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 Kessel’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. 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 IBCP’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 IBCP? 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 past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.