Bill Marsh took the reins as CEO of Emclaire Financial Corp’s (NASDAQ:EMCF) and grew market cap to US$85.85m 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 Marsh’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.
What has been the trend in EMCF’s earnings?
EMCF can create value to shareholders by increasing its profitability, which in turn is reflected into the share price and the investor’s ability to sell their shares at higher capital gains. Over the last year EMCF released an earnings of US$5.06m , which is an increase of 18.91% from its previous year’s earnings of US$4.25m. This is an encouraging signal that EMCF aims to sustain a strong track record of generating profits regardless of the challenges. As profits are moving up and up, CEO pay should echo Marsh’s value creation for shareholders. Over the same period Marsh’s total remuneration rose by 16.54% to US$647.60k.
Is EMCF’s CEO overpaid relative to the market?
While no standard benchmark exists, as remuneration should account for specific factors of the company and market, we can estimate a high-level thresold to see if EMCF is an outlier. This exercise helps investors ask the right question about Marsh’s incentive alignment. Normally, a US small-cap is worth around $1B, creates earnings of $96M, and pays its CEO circa $2.7M per annum. Allowing for EMCF’s size and performance, in terms of market cap and earnings, it appears that Marsh is paid in-line with the average US small-cap CEO This indicates that Marsh’s pay is fair.
In order to determine whether or not you should invest in EMCF, 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 EMCF makes money, and factors impacting your return on investment. 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 EMCF’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 EMCF? 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 email@example.com.