Henry Hu is the CEO of Kandi Technologies Group Inc (NASDAQ:KNDI), which has recently grown to a market capitalization of US$259.40M. 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. I will break down Hu’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 Kandi Technologies Group
What has KNDI’s performance been like?
KNDI 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 KNDI delivered negative earnings of -US$42.62M , compared to the previous year’s positive earnings. But on average, KNDI has been loss-making in the past, with a 5-year average EPS of -US$0.014. 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 case, CEO compensation should be reflective of the current state of the business. In the most recent financial statments, Hu’s total remuneration fell by -19.60%, to US$3.09M. Furthermore, Hu’s pay is also made up of 2.57% non-cash elements, which means that fluxes in KNDI’s share price can impact the actual level of what the CEO actually receives.
Is KNDI’s CEO overpaid relative to the market?
Though one size does not fit all, since remuneration should be tailored to the specific company and market, we can fashion a high-level base line to see if KNDI is an outlier. This outcome can help shareholders ask the right question about Hu’s incentive alignment. Normally, a US small-cap has a value of $1B, generates earnings of $96M, and remunerates its CEO at roughly $2.7M per annum. Usually I would look at market cap and earnings as a proxy for performance, however, KNDI’s negative earnings lower the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Hu’s pay is above other similar companies.
What this means for you:
The next CEO pay bump should be questioned by shareholders at AGM voting. Given that Hu’s pay is already above the bracket of other CEOs of similar companies, what justifies a further increase? Although CEO pay is not the be all and end all, it serves as a signal as to whether the board’s and management’s incentives are aligned with the rest of the shareholders. If you have not done so already, I urge you to complete your research by taking a look at the following:
- 1. Governance: To find out more about KNDI’s governance, look through our infographic report of the company’s board and management.
- 2. 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.
- 3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of KNDI? 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.