Alex Rozek took the reins as CEO of Boston Omaha Corporation’s (NASDAQ:BOMN) and grew market cap to US$383.28M recently. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. 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 Rozek’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. See our latest analysis for Boston Omaha
Did Rozek create value?
BOMN 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, BOMN released negative earnings of -US$4.89M , which is a further decline from prior year’s loss of -US$2.62M. Furthermore, on average, BOMN has been loss-making in the past, with a 5-year average EPS of -US$0.42. During times of unprofitability the company may be going through a period of reinvestment and growth, or it can be a sign of some headwind. Regardless, CEO compensation should echo the current condition of the business. In the latest financial statments, Rozek’s total remuneration more than doubled, to US$23.66K , but off a low base. Although I couldn’t find information on the composition of Rozek’s pay, if some portion were non-cash items such as stocks and options, then fluctuations in BOMN’s share price can affect the true level of what the CEO actually takes home at the end of the day.
Is BOMN overpaying the CEO?
Despite the fact that there is no cookie-cutter approach, since compensation should be tailored to the specific company and market, we can gauge a high-level thresold to see if BOMN deviates substantially from its peers. This outcome can help direct shareholders to ask the right question about Rozek’s incentive alignment. Typically, a US small-cap has a value of $1B, creates earnings of $96M, and pays its CEO circa $2.7M per year. Normally I would use earnings and market cap to account for variations in performance, however, BOMN’s negative earnings reduces the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Rozek is paid aptly compared to those in similar-sized companies. Overall, though BOMN is unprofitable, it seems like the CEO’s pay is reflective of the appropriate level.
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 Rozek 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. If you have not done so already, I urge you to complete your research by taking a look at the following:
- Governance: To find out more about BOMN’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 BOMN? 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.