Advertisement
U.S. markets closed
  • S&P 500

    5,254.35
    +5.86 (+0.11%)
     
  • Dow 30

    39,807.37
    +47.29 (+0.12%)
     
  • Nasdaq

    16,379.46
    -20.06 (-0.12%)
     
  • Russell 2000

    2,124.55
    +10.20 (+0.48%)
     
  • Crude Oil

    83.11
    +1.76 (+2.16%)
     
  • Gold

    2,254.80
    +42.10 (+1.90%)
     
  • Silver

    25.10
    +0.35 (+1.41%)
     
  • EUR/USD

    1.0792
    -0.0037 (-0.35%)
     
  • 10-Yr Bond

    4.2060
    +0.0100 (+0.24%)
     
  • GBP/USD

    1.2624
    -0.0015 (-0.11%)
     
  • USD/JPY

    151.3550
    +0.1090 (+0.07%)
     
  • Bitcoin USD

    70,901.76
    +1,780.88 (+2.58%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • Nikkei 225

    40,168.07
    -594.66 (-1.46%)
     

Should You Worry About Novume Solutions Inc’s (NASDAQ:NVMM) CEO Salary Level?

Robert Berman took the reins as CEO of Novume Solutions Inc’s (NASDAQ:NVMM) and grew market cap to US$37.55M 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 Berman’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. Check out our latest analysis for Novume Solutions

What has NVMM’s performance been like?

Profitability of a company is a strong indication of NVMM’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Berman’s performance. Most recently, NVMM released negative earnings of -US$5.40M , which is a further decline from prior year’s loss of -US$44.27K. Furthermore, on average, NVMM has been loss-making in the past, with a 5-year average EPS of -US$0.26. In the situation of unprofitability the company may be facing a period of reinvestment and growth, or it can be an indication of some headwind. Regardless, CEO compensation should echo the current condition of the business. In the latest financial report, Berman’s total remuneration more than doubled, reaching US$300.00K , but from a small number. Although I couldn’t find information on the breakdown of Berman’s pay, if some portion were non-cash items such as stocks and options, then fluctuations in NVMM’s share price can affect the true level of what the CEO actually collects at the end of the year.

NasdaqCM:NVMM Income Statement May 16th 18
NasdaqCM:NVMM Income Statement May 16th 18

What’s a reasonable CEO compensation?

While there is no cookie-cutter approach, since remuneration should be tailored to the specific company and market, we can gauge a high-level thresold to see if NVMM deviates substantially from its peers. This outcome can help shareholders ask the right question about Berman’s incentive alignment. Generally, a US small-cap is worth around $1B, generates earnings of $96M, and pays its CEO circa $2.7M per annum. Typically I’d use market cap and profit as factors determining performance, however, NVMM’s negative earnings reduces the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Berman is paid aptly compared to those in similar-sized companies. Overall, even though NVMM is loss-making, it seems like the CEO’s pay is appropriate.

Next Steps:

In the upcoming year’s AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose an executive pay raise. Will this raise take Berman’s pay beyond the bound of reasonableness, or will it help in retaining the talented executive? Being proactive in governance decisions is a key part to investing, and collectively, investors can make a big difference. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

  1. Governance: To find out more about NVMM’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 NVMM? 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.

Advertisement