Nathan Kroeker took the reins as CEO of Spark Energy Inc’s (NASDAQ:SPKE) and grew market cap to US$296.47m 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 Kroeker’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.
Did Kroeker create value?
Profitability of a company is a strong indication of SPKE’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Kroeker’s performance. Recently, SPKE delivered an earnings of US$4.76m , which is a rather significant decline from its prior year’s profit (excluding extraordinary items) of US$10.11m. However, SPKE has strived to maintain a good track record of profitability, given its average EPS of US$1.05 over the past couple of years. In the situation of deteriorating profitability, the company may be incurring a period of reinvestment and growth, or it can be an indication of some headwind. In any case, CEO compensation should represent the current condition of the business. In the latest financial report, Kroeker’s total compensation grew by 8.79% to US$1.92m. Moreover, Kroeker’s pay is also made up of 75.28% non-cash elements, which means that fluctuations in SPKE’s share price can move the actual level of what the CEO actually takes home at the end of the day.
Is SPKE’s CEO overpaid relative to the market?
While no standard benchmark exists, as remuneration should account for specific factors of the company and market, we can gauge a high-level benchmark to see if SPKE deviates substantially from its peers. This outcome helps investors ask the right question about Kroeker’s incentive alignment. Typically, a US small-cap has a value of $1B, generates earnings of $96M, and pays its CEO at roughly $2.7M per year. Taking into account SPKE’s size and performance, in terms of market cap and earnings, it appears that Kroeker is paid in-line with other comparable US CEOs of profitable small-caps. This indicates that Kroeker’s pay is fair.
In the upcoming year’s AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose an executive pay raise. Will this raise take Kroeker’s pay beyond the bound of reasonableness, or will it help in retaining the talented executive? Being proactive in governance decisions is a key part to investing, and collectively, investors can make a big difference. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
- Governance: To find out more about SPKE’s governance, look through our infographic report of the company’s board and management.
- 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.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of SPKE? 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 firstname.lastname@example.org.