Is PAVmed Inc (NASDAQ:PAVM) Overpaying Its CEO?
Lishan Aklog took the reins as CEO of PAVmed Inc’s (NASDAQ:PAVM) and grew market cap to US$27.87M 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 Aklog’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. View our latest analysis for PAVmed
What has PAVM’s performance been like?
Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Over the last year PAVM released negative earnings of -US$12.42M , which is a further decline from prior year’s loss of -US$4.67M. Additionally, on average, PAVM has been loss-making in the past, with a 5-year average EPS of -US$0.42. In the situation of unprofitability the company may be going through a period of reinvestment and growth, or it can be a signal of some headwind. In any event, CEO compensation should emulate the current condition of the business. From the latest report, Aklog’s total compensation more than doubled, reaching US$1.03M .
What’s a reasonable CEO compensation?
While no standard benchmark exists, as compensation should account for specific factors of the company and market, we can determine a high-level benchmark to see if PAVM deviates substantially from its peers. This outcome can help shareholders ask the right question about Aklog’s incentive alignment. Typically, a US small-cap is worth around $1B, generates 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, PAVM’s negative earnings lower the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Aklog is being paid within the bounds of reasonableness. Putting everything together, although PAVM is unprofitable, it seems like the CEO’s pay is sound.
Next Steps:
Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in PAVM, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
1. Governance: To find out more about PAVM’s governance, look through our infographic report of the company’s board and management.
2. 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.
3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of PAVM? 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.
