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Is Peoples Bancorp of North Carolina Inc (NASDAQ:PEBK) Excessively Paying Its CEO?

Shawn Clark

Lance Sellers is the CEO of Peoples Bancorp of North Carolina Inc (NASDAQ:PEBK), which has recently grown to a market capitalization of US$181.2m. 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 Sellers’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 Peoples Bancorp of North Carolina

What has PEBK’s performance been like?

PEBK 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. Most recently, PEBK produced a profit of US$11.7m , which is an increase of 33.7% from its previous year’s earnings of US$8.8m. This is a positive indication that PEBK has strived to maintain a good track record of profitability in the face of any headwinds. Given earnings are moving the right way, CEO pay should be reflective of Sellers’s valued-adding activities. During this period Sellers’s total compensation grew by a mere 1.6% to US$465.8k. In addition to this, Sellers’s pay is also made up of 13.42% non-cash elements, which means that fluxes in PEBK’s share price can move the true level of what the CEO actually receives.

NasdaqGM:PEBK Past Future Earnings August 24th 18
NasdaqGM:PEBK Past Future Earnings August 24th 18

What’s a reasonable CEO compensation?

Despite the fact that one size does not fit all, as compensation should account for specific factors of the company and market, we can estimate a high-level benchmark to see if PEBK is an outlier. This exercise can help direct shareholders to ask the right question about Sellers’s incentive alignment. Normally, a US small-cap is worth around $1B, creates earnings of $96M, and remunerates its CEO circa $2.7M per annum. Taking into account PEBK’s size and performance, in terms of market cap and earnings, it appears that Sellers is being paid well below other similar US CEOs in the small-cap industry.

Next Steps:

CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Is Sellers remunerated appropriately based on other factors we have not covered today? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours. If you have not done so already, I urge you to complete your research by taking a look at the following:

  1. Governance: To find out more about PEBK’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 PEBK? 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.