Annmarie Gayle took the reins as CEO of Coda Octopus Group Inc’s (NASDAQ:CODA) and grew market cap to US$39.58M recently. 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 Gayle’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. Check out our latest analysis for Coda Octopus Group
Did Gayle create value?
Profitability of a company is a strong indication of CODA’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Gayle’s performance. Recently, CODA delivered an earnings of US$1.60M , which is a rather significant decline from its prior year’s profit (excluding extraordinary items) of US$6.21M. However, CODA has strived to maintain a good track record of profitability, given its average EPS of US$0.51 over the past couple of years. In the situation of deteriorating profitability, the company may be incurring a period of reinvestment and growth, or it can be a signal of some headwind. Regardless, CEO compensation should mirror the current state of the business. From the latest financial statments, Gayle’s total remuneration rose by 6.74% to US$245.50K.
What’s a reasonable CEO compensation?
While one size does not fit all, since remuneration should be tailored to the specific company and market, we can evaluate a high-level benchmark to see if CODA is an outlier. This outcome can help shareholders ask the right question about Gayle’s incentive alignment. Generally, a US small-cap has a value of $1B, generates earnings of $96M, and remunerates its CEO at roughly $2.7M per year. Considering CODA’s size and performance, in terms of market cap and earnings, it appears that Gayle is paid on a similar level to other comparable US CEOs of profitable small-caps. This could mean Gayle is paid a suitable level.
My conclusion is that Gayle is not being overpaid. But your role as a shareholder should not end here. As above, this is a relatively simplistic calculation using high-level benchmarket. Proactive shareholders should question their representatives (i.e. the board of directors) how they think about the CEO’s incentive alignment with shareholders and how they balance this with retention and reward. 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 CODA’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 CODA? 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.