Yitzhak Nissan is the CEO of Eltek Ltd (NASDAQ:ELTK), which has recently grown to a market capitalization of US$7.51M. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. 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 Nissan’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 Eltek
What has been the trend in ELTK’s earnings?
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. Over the last year ELTK delivered negative earnings of -US$6.11M , which is a further decline from prior year’s loss of -US$388.00K. But ELTK hasn’t always been loss-making, with an average EPS of US$0.081 over the past five years. In the situation of negative earnings, the company may be incurring a period of reinvestment and growth, or it can be a signal of some headwind. Regardless, CEO compensation should mirror the current state of the business. From the latest financial statments, Nissan’s total remuneration remained stable at US$278.07K since the previous year.
What’s a reasonable CEO compensation?
While no standard benchmark exists, since compensation should be tailored to the specific company and market, we can gauge a high-level thresold to see if ELTK deviates substantially from its peers. This outcome helps investors ask the right question about Nissan’s incentive alignment. Typically, a US small-cap has a value of $1B, creates earnings of $96M, and pays its CEO at roughly $2.7M annually. Normally I’d use market cap and profit as factors determining performance, however, ELTK’s negative earnings reduces the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Nissan is being paid within the bounds of reasonableness. On the whole, even though ELTK is loss-making, it seems like the CEO’s pay is sound.
Hopefully this article has given you insight on how shareholders should think about ELTK’s governance policies such as CEO pay. As an investor, you have the right to understand how the board thinks about management incentives, and also the right to vote for and against substantial CEO pay changes. Governance is a big factor in investing, and I encourage you to dig deeper into those that represent your voice on the board. 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 ELTK’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 ELTK? 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.