Francois Michelon took the helm as ENDRA Life Sciences Inc’s (NASDAQ:NDRA) CEO and grew market cap to US$7.37M recently. 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 Michelon’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 ENDRA Life Sciences
What has NDRA’s performance been like?
Profitability of a company is a strong indication of NDRA’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Michelon’s performance. Most recently, NDRA produced negative earnings of -US$7.46M , which is a further decline from prior year’s loss of -US$3.14M. Furthermore, on average, NDRA has been loss-making in the past, with a 5-year average EPS of -US$3.21. In the situation of negative earnings, the company may be going through a period of reinvestment and growth, or it can be a sign of some headwind. In any event, CEO compensation should echo the current state of the business. In the most recent financial statments, Michelon’s total remuneration rose by 32.54% to US$347.45K.
What’s a reasonable CEO compensation?
Even though there is no cookie-cutter approach, as remuneration should be tailored to the specific company and market, we can gauge a high-level yardstick to see if NDRA deviates substantially from its peers. This outcome helps investors ask the right question about Michelon’s incentive alignment. Normally, a US small-cap is worth around $1B, generates earnings of $96M, and remunerates its CEO circa $2.7M annually. Typically I would look at market cap and earnings as a proxy for performance, however, NDRA’s negative earnings lower the effectiveness of this method. Given the range of pay for small-cap executives, it seems like Michelon is paid aptly compared to those in similar-sized companies. Putting everything together, even though NDRA is unprofitable, it seems like the CEO’s pay is sound.
Hopefully this article has given you insight on how shareholders should think about NDRA’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 NDRA’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 NDRA? 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.