Leading Remark Holdings Inc (NASDAQ:MARK) as the CEO, Kai-Shing Tao took the company to a valuation of USD$230.61M. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. 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 Tao’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 Remark Holdings
What has MARK performance been like?
MARK 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. Over the last year MARK released negative earnings of -$26.2M . However, this is an improvement on prior year’s loss of -$37.1M, which may signal a turnaround since MARK has been loss-making for the past five years, on average, with an EPS of -$1.3. As profits are moving up and up, CEO pay should mirror Tao’s value creation for shareholders. During the same period, Tao’s total compensation increased over two-fold, reaching $4,309,500 . In addition to this, Tao’s pay is also made up of 0.05% non-cash elements, which means that variabilities in MARK’s share price can impact the actual level of what the CEO actually collects at the end of the year.
What’s a reasonable CEO compensation?
Even though no standard benchmark exists, as remuneration should account for specific factors of the company and market, we can determine a high-level yardstick to see if MARK deviates substantially from its peers. This exercise can help shareholders ask the right question about Tao’s incentive alignment. On average, a US small-cap is worth around $1B, creates earnings of $96M, and remunerates its CEO circa $2.7M per year. Typically I’d use market cap and profit as factors determining performance, however, MARK’s negative earnings reduces the effectiveness of this method. Given the range of pay for small-cap executives, it seems like Tao’s pay exceeds its peer group.
What this means for you:
Are you a shareholder? In the upcoming year’s AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose another executive pay raise. Although this analysis is relatively simplified, the fact that Tao’s pay is above its peer group should raise questions as to why this may be the case. To find out more about MARK’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? Although remuneration can be a useful gauge of whether Tao’s incentives are well-aligned with MARK’s shareholders, it is certainly not sufficient to base your investment decision solely on this factor. Whether the company is fundamentally strong depends on MARK’s financial health and its future outlook. To research more about these fundamentals, I recommend you check out our simple infographic report on MARK’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.