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Vince Arnone took the reins as CEO of Fuel Tech Inc’s (NASDAQ:FTEK) and grew market cap to US$28.28M recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. Today we will assess Arnone’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 Fuel Tech
Did Arnone create value?
FTEK 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, FTEK delivered negative earnings of -US$5.48M . But this is an improvement on prior year’s loss of -US$17.26M, which may signal a turnaround since FTEK has been loss-making for the past five years, on average, with an EPS of -US$0.24. Given earnings are moving the right way, CEO pay should echo Arnone’s value creation for shareholders. Over the same period Arnone’s total remuneration fell by a meaningful rate of -24.01%, to US$539.07K. Moreover, Arnone’s pay is also made up of 35.32% non-cash elements, which means that fluxes in FTEK’s share price can impact the actual level of what the CEO actually receives.
What’s a reasonable CEO compensation?
Despite the fact that no standard benchmark exists, as remuneration should be tailored to the specific company and market, we can evaluate a high-level thresold to see if FTEK is an outlier. This exercise can help direct shareholders to ask the right question about Arnone’s incentive alignment. Normally, a US small-cap has a value of $1B, creates earnings of $96M, and remunerates its CEO circa $2.7M annually. Usually I would use earnings and market cap to account for variations in performance, however, FTEK’s negative earnings reduces the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Arnone is paid aptly compared to those in similar-sized companies. On the whole, though FTEK 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 FTEK’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 highly recommend you to complete your research by taking a look at the following:
Governance: To find out more about FTEK’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 FTEK? 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.