Eric Gatoff took the reins as CEO of Nathan’s Famous Inc’s (NASDAQ:NATH) and grew market cap to US$334.97M 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. I will break down Gatoff’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 Nathan’s Famous
Did Gatoff create value?
NATH 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. Over the last year NATH delivered an earnings of US$2.99M , which is a rather significant decline from its prior year’s profit (excluding extraordinary items) of US$7.26M. However, NATH has strived to maintain a good track record of profitability, given its average EPS of US$1.68 over the past couple of years. During times of fall in profits, the company may be going through a period of reinvestment and growth, or it can be an indication of some headwind. In any event, CEO compensation should echo the current state of the business. In the most recent report, Gatoff’s total compensation increased by 17.56% to US$1.20M. Moreover, Gatoff’s pay is also made up of 21.07% non-cash elements, which means that variabilities in NATH’s share price can impact the actual level of what the CEO actually collects at the end of the year.
What’s a reasonable CEO compensation?
Though there is no cookie-cutter approach, as compensation should account for specific factors of the company and market, we can determine a high-level base line to see if NATH is an outlier. This outcome can help shareholders ask the right question about Gatoff’s incentive alignment. On average, a US small-cap is worth around $1B, creates earnings of $96M, and remunerates its CEO circa $2.7M annually. Based on NATH’s size and performance, in terms of market cap and earnings, it appears that Gatoff is paid in-line with other US CEOs of small-caps, on average. This may mean that NATH is appropriately compensating its CEO.
You can breathe easy knowing that shareholder funds aren’t being used to overpay NATH’s CEO. However, on the flipside, you should ask whether Gatoff 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 highly recommend you to complete your research by taking a look at the following:
- Governance: To find out more about NATH’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 NATH? 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.