Tom Pickens took the reins as CEO of Astrotech Corporation’s (NASDAQ:ASTC) and grew market cap to US$11.83M 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 Pickens’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 Astrotech
Did Pickens create value?
Earnings is a powerful indication of ASTC’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Pickens’s performance in the past year. Recently, ASTC produced negative earnings of -US$11.17M . However, this is an improvement on prior year’s loss of -US$13.15M, which may signal a turnaround since ASTC has been loss-making for the past five years, on average, with an EPS of -US$1.74. As profits are moving up and up, CEO pay should mirror Pickens’s hard work. Over the same period Pickens’s total remuneration rose by a mere 3.86% to US$605.98K. Moreover, Pickens’s pay is also made up of 13.12% non-cash elements, which means that fluxes in ASTC’s share price can move the actual level of what the CEO actually receives.
Is ASTC overpaying the CEO?
Though one size does not fit all, since compensation should be tailored to the specific company and market, we can fashion a high-level base line to see if ASTC is an outlier. This exercise can help shareholders ask the right question about Pickens’s incentive alignment. Normally, a US small-cap is worth around $1B, generates 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, ASTC’s negative earnings lower the effectiveness of this method. Given the range of pay for small-cap executives, it seems like Pickens is being paid within the bounds of reasonableness. Overall, even though ASTC is unprofitable, it seems like the CEO’s pay is reflective of the appropriate level.
You can breathe easy knowing that shareholder funds aren’t being used to overpay ASTC’s CEO. However, on the flipside, you should ask whether Pickens is appropriately remunerated on the basis of retention. Its important for shareholders to be active in voting governance decisions, as board members are only representatives of investors’ voices. If you have not done so already, I urge you to complete your research by taking a look at the following:
- 1. Governance: To find out more about ASTC’s governance, look through our infographic report of the company’s board and management.
- 2. 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.
- 3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of ASTC? 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.