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Is Oxbridge Re Holdings Limited’s (NASDAQ:OXBR) CEO Incentives Align With Yours?

Cole Patterson

Jay Madhu took the reins as CEO of Oxbridge Re Holdings Limited’s (NASDAQ:OXBR) and grew market cap to USD$12.90M 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 Madhu’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 Oxbridge Re Holdings

What has OXBR performance been like?

OXBR 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, OXBR delivered negative earnings of -$22.9M , compared to the previous year’s positive earnings. Furthermore, OXBR hasn’t always been loss-making, with an average EPS of $0.39 over the past five years. In the situation of unprofitability the company may be facing a period of reinvestment and growth, or it can be an indication of some headwind. In any case, CEO compensation should emulate the current condition of the business. In the latest financial statments, Madhu’s total compensation more than doubled, reaching $293,504 , but from a small basis.

NasdaqCM:OXBR Income Statement Dec 20th 17

What’s a reasonable CEO compensation?

While there is no cookie-cutter approach, since compensation should be tailored to the specific company and market, we can evaluate a high-level yardstick to see if OXBR is an outlier. This outcome can help shareholders ask the right question about Madhu’s incentive alignment. Normally, a US small-cap is worth around $1B, creates earnings of $96M, and remunerates its CEO circa $2.7M per year. Typically I would use earnings and market cap to account for variations in performance, however, OXBR’s negative earnings reduces the effectiveness of this method. Given the range of pay for small-cap executives, it seems like Madhu is being paid within the bounds of reasonableness. Putting everything together, though OXBR is unprofitable, it seems like the CEO’s pay is appropriate.

What this means for you:

Are you a shareholder? My conclusion is that Madhu 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. To find out more about OXBR’s governance, look through our infographic report of the company’s board and management.

Are you a potential investor? In order to determine whether or not you should invest in OXBR, your thesis should be built on fundamentals. Even though CEO pay isn’t technically a key concern, it could serve as an indication as to how board members align incentives and how they think about setting policies. These issues directly impacts how OXBR makes money, and factors impacting your return on investment. To research more about these fundamentals, I recommend you check out our simple infographic report on OXBR’s financial metrics.

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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.