Alexander Kinzler took the reins as CEO of Barnwell Industries Inc’s (AMEX:BRN) and grew market cap to USD$17.63M 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 Kinzler’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. See our latest analysis for BRN
What has BRN performance been like?
Earnings is a powerful indication of BRN’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Kinzler’s performance in the past year. Most recently, BRN produced negative earnings of -$1M , compared to the previous year’s positive earnings. Though, on average, BRN has been loss-making in the past, with a 5-year average EPS of -$0.34. During times of unprofitability the company may be facing a period of reinvestment and growth, or it can be a sign of some headwind. Regardless, CEO compensation should represent the current state of the business. From the latest financial report, Kinzler’s total remuneration declined by a significant rate of -35.40%, to $363,439. Although I couldn’t find information on the breakdown of Kinzler’s pay, if some portion were non-cash items such as stocks and options, then variabilities in BRN’s share price can affect the actual level of what the CEO actually collects at the end of the year.
Is BRN’s CEO overpaid relative to the market?
Even though one size does not fit all, as compensation should be tailored to the specific company and market, we can fashion a high-level base line to see if BRN deviates substantially from its peers. This outcome helps investors ask the right question about Kinzler’s incentive alignment. Typically, a US small-cap has a value of $1B, creates earnings of $96M, and remunerates its CEO at roughly $2.7M annually. Usually I would use earnings and market cap to account for variations in performance, however, BRN’s negative earnings reduces the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Kinzler is paid aptly compared to those in similar-sized companies. Putting everything together, although BRN is loss-making, it seems like the CEO’s pay is sound.
What this means for you:
Are you a shareholder? My conclusion is that Kinzler is not being overpaid. But your role as a shareholder should not end here. As above, this is a relatively simplistic calculation using high-level benchmarket. Proactive shareholders should question their representatives (i.e. the board of directors) how they think about the CEO’s incentive alignment with shareholders and how they balance this with retention and reward. To find out more about BRN’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? In order to determine whether or not you should invest in BRN, 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 BRN makes money, and factors impacting your return on investment. To research more about these fundamentals, I recommend you check out our simple infographic report on BRN’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.