Should You Worry About Argos Therapeutics Inc’s (NASDAQ:ARGS) CEO Pay?
Jeff Abbey has been at the helm as CEO of Argos Therapeutics Inc (NASDAQ:ARGS), which has grown to a market capitalization of $13.62M. 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 Abbey’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. View our latest analysis for Argos Therapeutics
Did Abbey create value?
Earnings is a powerful indication of ARGS’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Abbey’s performance in the past year. In the past year, ARGS produced negative earnings of -$54.0M . However, this is an improvement on prior year’s loss of -$55.2M, which may signal a turnaround since ARGS has been loss-making for the past five years, on average, with an EPS of -$66.02. Given earnings are moving the right way, CEO pay should echo Abbey’s valued-adding activities. During the same period, Abbey’s total compensation rose by 34.68% to $1,862,869. In addition to this, Abbey’s pay is also made up of 45.44% non-cash elements, which means that variabilities in ARGS’s share price can impact the real level of what the CEO actually collects at the end of the year.
Is ARGS overpaying the CEO?
Even though one size does not fit all, since remuneration should account for specific factors of the company and market, we can fashion a high-level yardstick to see if ARGS is an outlier. This outcome can help direct shareholders to ask the right question about Abbey’s incentive alignment. Normally, a US small-cap has a value of $1B, creates earnings of $96M, and remunerates its CEO circa $2.7M per annum. Normally I’d use market cap and profit as factors determining performance, however, ARGS’s negative earnings lower the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Abbey is being paid within the bounds of reasonableness. On the whole, although ARGS is loss-making, it seems like the CEO’s pay is reflective of the appropriate level.
What this means for you:
Are you a shareholder? My conclusion is that Abbey 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 ARGS’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in ARGS, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. To research more about these fundamentals, I recommend you check out our simple infographic report on ARGS’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.
