Brendan Hoffman took the reins as CEO of Vince Holding Corp’s (NYSE:VNCE) and grew market cap to US$263.69m recently. 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 Hoffman’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 Hoffman create value?
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. Recently, VNCE delivered a profit of US$62.25m , moving VNCE from negative territory of -US$170.56m in the prior year to profitability. This could signal a turnaround given that VNCE has been loss-making for the past five years, on average, with an EPS of -US$3.27. Given earnings are moving the right way, CEO pay should represent Hoffman’s valued-adding activities. Over the same period Hoffman’s total remuneration dropped by -11.85%, to US$1.74m. In addition to this, Hoffman’s pay is also made up of 1.98% non-cash elements, which means that variabilities in VNCE’s share price can move the real level of what the CEO actually collects at the end of the year.
What’s a reasonable CEO compensation?
Despite the fact that one size does not fit all, since compensation should be tailored to the specific company and market, we can gauge a high-level yardstick to see if VNCE is an outlier. This outcome helps investors ask the right question about Hoffman’s incentive alignment. On average, a US small-cap is worth around $1B, generates earnings of $96M, and pays its CEO at roughly $2.7M per annum. Allowing for the size of VNCE in terms of market cap, as well as its performance, using earnings as a proxy, it appears that Hoffman is paid in-line with the average US small-cap CEO This could mean Hoffman is paid a suitable level.
In order to determine whether or not you should invest in VNCE, your thesis should be built on fundamentals. Even though CEO pay isn’t technically a key concern, it could serve as an indication as to how board members align incentives and how they think about setting policies. These issues directly impacts how VNCE makes money, and factors impacting your return on investment. If you have not done so already, I urge you to complete your research by taking a look at the following:
- Governance: To find out more about VNCE’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 VNCE? 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.