Leading Oncobiologics Inc (NASDAQ:ONS) as the CEO, Pankaj Mohan took the company to a valuation of US$23.68M. 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 Mohan’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 Oncobiologics
What has been the trend in ONS’s earnings?
Profitability of a company is a strong indication of ONS’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Mohan’s performance. Most recently, ONS produced negative earnings of -US$38.65M . However, this is an improvement on prior year’s loss of -US$64.43M, which may signal a turnaround since ONS has been loss-making for the past five years, on average, with an EPS of -US$3.49. As profits are moving up and up, CEO pay should be reflective of Mohan’s valued-adding activities. Over the same period Mohan’s total remuneration fell by more than half of the prior year’s level, to US$1.08M.
Is ONS’s CEO overpaid relative to the market?
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 base line to see if ONS deviates substantially from its peers. This exercise can help shareholders ask the right question about Mohan’s incentive alignment. Typically, a US small-cap has a value of $1B, creates earnings of $96M, and pays its CEO circa $2.7M annually. Typically I would look at market cap and earnings as a proxy for performance, however, ONS’s negative earnings lower the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Mohan is paid aptly compared to those in similar-sized companies. Putting everything together, even though ONS is loss-making, it seems like the CEO’s pay is fair.
My conclusion is that Mohan is not being overpaid. But your role as a shareholder should not end here. As above, this is a relatively simplistic calculation using high-level benchmarket. Proactive shareholders should question their representatives (i.e. the board of directors) how they think about the CEO’s incentive alignment with shareholders and how they balance this with retention and reward. 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 ONS’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 ONS? 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.