Geert Kersten took the reins as CEO of CEL-SCI Corporation’s (AMEX:CVM) and grew market cap to US$22.60M 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 Kersten’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 CEL-SCI
Did Kersten create value?
Earnings is a powerful indication of CVM’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Kersten’s performance in the past year. Most recently, CVM delivered negative earnings of -US$24.14M , which is a further decline from prior year’s loss of -US$10.33M. Additionally, on average, CVM has been loss-making in the past, with a 5-year average EPS of -US$11.62. During times of negative earnings, the company may be facing a period of reinvestment and growth, or it can be a sign of some headwind. Regardless, CEO compensation should echo the current condition of the business. From the latest financial statments, Kersten’s total compensation rose by 32.84% to US$835.95K. Furthermore, Kersten’s pay is also made up of 26.56% non-cash elements, which means that variabilities in CVM’s share price can move the true level of what the CEO actually takes home at the end of the day.
What’s a reasonable CEO compensation?
Even though no standard benchmark exists, as remuneration should account for specific factors of the company and market, we can estimate a high-level benchmark to see if CVM is an outlier. This exercise can help direct shareholders to ask the right question about Kersten’s incentive alignment. Normally, a US small-cap is worth around $1B, creates earnings of $96M, and pays its CEO at roughly $2.7M per annum. Usually I would look at market cap and earnings as a proxy for performance, however, CVM’s negative earnings lower the effectiveness of this method. Given the range of pay for small-cap executives, it seems like Kersten is paid aptly compared to those in similar-sized companies. On the whole, although CVM 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 CVM’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 urge you to complete your research by taking a look at the following:
- Governance: To find out more about CVM’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 CVM? 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.