Jeff Schoen is the CEO of Orchids Paper Products Company (NYSEMKT:TIS), which has recently grown to a market capitalization of US$8.53m. 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. I will break down Schoen’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.
What has TIS’s performance been like?
Profitability of a company is a strong indication of TIS’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Schoen’s performance. Recently, TIS released an earnings of US$362.00k , which is a rather significant decline from its prior year’s profit (excluding extraordinary items) of US$1.93m. However, TIS has strived to maintain a good track record of profitability, given its average EPS of US$1.08 over the past couple of years. In the situation of falling profits, the company may be incurring a period of reinvestment and growth, or it can be an indication of some headwind. Regardless, CEO compensation should represent the current state of the business. In the latest financial report, Schoen’s total remuneration declined by -13.54%, to US$480.19k.
What’s a reasonable CEO compensation?
Even though one size does not fit all, as remuneration should account for specific factors of the company and market, we can estimate a high-level base line to see if TIS is an outlier. This outcome can help shareholders ask the right question about Schoen’s incentive alignment. Typically, a US small-cap has a value of $1B, produces earnings of $96M, and pays its CEO at roughly $2.7M per year. Based on TIS’s size and performance, in terms of market cap and earnings, it appears that Schoen is paid on a similar level to the average US small-cap CEO This indicates that Schoen’s pay is fair.
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 Schoen 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 highly recommend you to complete your research by taking a look at the following:
- Governance: To find out more about TIS’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 TIS? 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 firstname.lastname@example.org.