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How Should Investors React To American Shared Hospital Services’s (NYSEMKT:AMS) CEO Pay?

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Scott Perkins
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Ernest Bates is the CEO of American Shared Hospital Services (NYSEMKT:AMS), which has recently grown to a market capitalization of US$17.68m. 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 Bates’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 American Shared Hospital Services

Did Bates create value?

Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Recently, AMS produced an earnings of US$2.19m , which is an increase of 84.06% from its last year’s earnings of US$1.19m. This is a positive indication that AMS has strived to maintain a good track record of profitability in the face of any headwinds. Given earnings are moving the right way, CEO pay should echo Bates’s value creation for shareholders. In the same year, Bates’s total remuneration rose by 9.61% to US$499.53k. Moreover, Bates’s pay is also made up of 8.88% non-cash elements, which means that fluxes in AMS’s share price can impact the real level of what the CEO actually takes home at the end of the day.

AMEX:AMS Past Future Earnings August 22nd 18
AMEX:AMS Past Future Earnings August 22nd 18

Is AMS overpaying the CEO?

While no standard benchmark exists, since compensation should account for specific factors of the company and market, we can evaluate a high-level base line to see if AMS is an outlier. This exercise helps investors ask the right question about Bates’s incentive alignment. Normally, a US small-cap is worth around $1B, creates earnings of $96M, and pays its CEO at roughly $2.7M annually. Considering the size of AMS in terms of market cap, as well as its performance, using earnings as a proxy, it appears that Bates is compensated similar to the average US small-cap CEO This indicates that Bates’s pay is fair.

Next Steps:

You can breathe easy knowing that shareholder funds aren’t being used to overpay AMS’s CEO. However, on the flipside, you should ask whether Bates 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 AMS’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 AMS? 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 editorial-team@simplywallst.com.