Bill Shepro took the helm as Altisource Portfolio Solutions SA’s (NASDAQ:ASPS) CEO and grew market cap to $524.43M 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. I will break down Shepro’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 Altisource Portfolio Solutions

What has been the trend in ASPS’s earnings?

Earnings is a powerful indication of ASPS’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Shepro’s performance in the past year. Over the last year ASPS released an earnings of $2.2M , which is a rather significant decline from its prior year’s profit (excluding extraordinary items) of $4.0M. However, ASPS has strived to maintain a good track record of profitability, given its average EPS of $3.63 over the past couple of years. In the situation of fall in profits, the company may be incurring a period of reinvestment and growth, or it can be a signal of some headwind. In any case, CEO compensation should echo the current condition of the business. From the latest financial report, Shepro’s total compensation fell by a non-trivial rate of -47.27%, to $2,507,488.

What’s a reasonable CEO compensation?

Even though no standard benchmark exists, as compensation should be tailored to the specific company and market, we can gauge a high-level benchmark to see if ASPS deviates substantially from its peers. This exercise can help direct shareholders to ask the right question about Shepro’s incentive alignment. Generally, a US small-cap is worth around $1B, generates earnings of $96M, and pays its CEO at roughly $2.7M per year. Allowing for ASPS’s size and performance, in terms of market cap and earnings, it appears that Shepro is compensated similar to other comparable US CEOs of profitable small-caps. This could mean Shepro is paid a suitable level.

What this means for you:

Are you a shareholder? You can breathe easy knowing that shareholder funds aren’t being used to overpay ASPS’s CEO. However, on the flipside, you should ask whether Shepro is appropriately remunerated on the basis of retention. Its important for shareholders to be active in voting governance decisions, as board members are only representatives of investors’ voices. To find out more about ASPS’s governance, look through our infographic report of the company’s board and management.