Al Gonsoulin took the reins as CEO of PHI Inc’s (NASDAQ:PHII) and grew market cap to US$198.81M 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 Gonsoulin’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 PHI
What has PHII’s performance been like?
PHII 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. Recently, PHII delivered a profit of US$5.80M , moving PHII from negative territory of -US$33.00M in the prior year to profitability. However, this fluctuation between profitability and loss-making over the past couple of years leads to lower conviction in extrapolating past performance into the future. As profits are moving up and up, CEO pay should echo Gonsoulin’s valued-adding activities. Over the same period Gonsoulin’s total remuneration increased over two-fold, to US$4.89M . Moreover, Gonsoulin’s pay is also made up of 35.07% non-cash elements, which means that fluxes in PHII’s share price can move the real level of what the CEO actually takes home at the end of the day.
Is PHII overpaying the CEO?
Despite the fact that there is no cookie-cutter approach, as compensation should be tailored to the specific company and market, we can estimate a high-level benchmark to see if PHII deviates substantially from its peers. This exercise can help shareholders ask the right question about Gonsoulin’s incentive alignment. Typically, a US small-cap is worth around $1B, produces earnings of $96M, and pays its CEO at roughly $2.7M per year. Allowing for the size of PHII in terms of market cap, as well as its performance, using earnings as a proxy, it seems that Gonsoulin is paid above the average US small-cap CEO. Although this is only a high-level calculation, investors should be cognizant of this expense.
What this means for you:
Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in PHII, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. 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 PHII’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 PHII? 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.