How Should Investors React To BELLUS Health Inc’s (TSE:BLU) CEO Pay?
Roberto Bellini is the CEO of BELLUS Health Inc (TSE:BLU), which has recently grown to a market capitalization of CA$68.11m. 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. Today we will assess Bellini’s pay and compare this to the company’s performance over the same period, as well as measure it against other Canadian CEOs leading companies of similar size and profitability.
View our latest analysis for BELLUS Health
What has BLU’s performance been like?
Profitability of a company is a strong indication of BLU’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Bellini’s performance. Most recently, BLU delivered negative earnings of -CA$4.86m , which is a further decline from prior year’s loss of -CA$291.00k. Furthermore, on average, BLU has been loss-making in the past, with a 5-year average EPS of -CA$0.14. 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. In any event, CEO compensation should be reflective of the current condition of the business. From the latest report, Bellini’s total remuneration fell by -17.12%, to CA$386.85k.
What’s a reasonable CEO compensation?
Even though there is no cookie-cutter approach, as compensation should be tailored to the specific company and market, we can gauge a high-level yardstick to see if BLU is an outlier. This exercise helps investors ask the right question about Bellini’s incentive alignment. Generally, a Canadian small-cap is worth around $345M, creates earnings of $24M, and remunerates its CEO circa $770,000 per year. Normally I’d use market cap and profit as factors determining performance, however, BLU’s negative earnings reduces the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Bellini is being paid within the bounds of reasonableness. Putting everything together, even though BLU is loss-making, it seems like the CEO’s pay is fair.
Next Steps:
You can breathe easy knowing that shareholder funds aren’t being used to overpay BLU’s CEO. However, on the flipside, you should ask whether Bellini 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:
Governance: To find out more about BLU’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 BLU? 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.
