Tri Trung took the helm as SemiLEDs Corporation’s (NASDAQ:LEDS) CEO and grew market cap to US$15.66M recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. 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 Trung ’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 SemiLEDs
What has LEDS’s performance been like?
LEDS 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, LEDS produced negative earnings of -US$3.79M . However, this is an improvement on prior year’s loss of -US$18.65M, which may signal a turnaround since LEDS has been loss-making for the past five years, on average, with an EPS of -US$9.29. As profits are moving up and up, CEO pay should echo Trung ‘s value creation for shareholders. In the same year, Trung ‘s total compensation declined by a trivial -0.016%, to US$305.10K.
Is LEDS’s CEO overpaid relative to the market?
Though there is no cookie-cutter approach, since compensation should be tailored to the specific company and market, we can gauge a high-level base line to see if LEDS is an outlier. This exercise helps investors ask the right question about Trung ’s incentive alignment. Normally, a US small-cap is worth around $1B, generates earnings of $96M, and pays its CEO at roughly $2.7M per annum. Typically I would use earnings and market cap to account for variations in performance, however, LEDS’s negative earnings reduces the effectiveness of this method. Given the range of pay for small-cap executives, it seems like Trung is paid aptly compared to those in similar-sized companies. Overall, even though LEDS is unprofitable, it seems like the CEO’s pay is reflective of the appropriate level.
Hopefully this article has given you insight on how shareholders should think about LEDS’s governance policies such as CEO pay. As an investor, you have the right to understand how the board thinks about management incentives, and also the right to vote for and against substantial CEO pay changes. Governance is a big factor in investing, and I encourage you to dig deeper into those that represent your voice on the board. 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 LEDS’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 LEDS? 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.