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Is Power REIT (NYSEMKT:PW) Excessively Paying Its CEO?

Matthew Smith

David Lesser is the CEO of Power REIT (AMEX:PW), which has recently grown to a market capitalization of US$11.48M. 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 Lesser’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 Power REIT

Did Lesser create value?

Profitability of a company is a strong indication of PW’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Lesser’s performance. Recently, PW released a profit of US$438.60K , moving PW from negative territory of -US$32.69K in the prior year to profitability. This could signal a turnaround given that PW has been loss-making for the past five years, on average, with an EPS of -US$0.20. Since earnings are heading towards the right direction, CEO pay should mirror Lesser’s hard work. Over the same period Lesser’s total remuneration increased over two-fold, to US$200.00K , although from a small basis.

AMEX:PW Past Future Earnings May 1st 18

What’s a reasonable CEO compensation?

Even though one size does not fit all, as compensation should account for specific factors of the company and market, we can evaluate a high-level thresold to see if PW is an outlier. This outcome can help direct shareholders to ask the right question about Lesser’s incentive alignment. Generally, a US small-cap is worth around $1B, generates earnings of $96M, and pays its CEO circa $2.7M per year. Based on the size of PW in terms of market cap, as well as its performance, using earnings as a proxy, it seems that Lesser is paid on a similar level to other comparable US CEOs of profitable small-caps. This indicates that Lesser’s pay is fair.

Next Steps:

You can breathe easy knowing that shareholder funds aren’t being used to overpay PW’s CEO. However, on the flipside, you should ask whether Lesser 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:

  1. Governance: To find out more about PW’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 PW? 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.