Cary Cheldin took the helm as Unico American Corporation’s (NASDAQ:UNAM) CEO and grew market cap to US$42.72M 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 Cheldin’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 Unico American
Did Cheldin create value?
Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Most recently, UNAM delivered negative earnings of -US$5.35M , which is a further decline from prior year’s loss of -US$2.25M. Though, UNAM hasn’t always been loss-making, with an average EPS of US$0.076 over the past five years. During times of negative earnings, the company may be incurring a period of reinvestment and growth, or it can be a sign of some headwind. In any case, CEO compensation should represent the current state of the business. In the latest report, Cheldin’s total compensation rose by a mere 2.10% to US$411.43K. Although I couldn’t find information on the composition of Cheldin’s pay, if some portion were non-cash items such as stocks and options, then fluxes in UNAM’s share price can impact the true level of what the CEO actually receives.
Is UNAM’s CEO overpaid relative to the market?
Even though there is no cookie-cutter approach, as compensation should account for specific factors of the company and market, we can evaluate a high-level benchmark to see if UNAM deviates substantially from its peers. This exercise can help direct shareholders to ask the right question about Cheldin’s incentive alignment. Typically, a US small-cap is worth around $1B, creates earnings of $96M, and pays its CEO circa $2.7M per year. Typically I would use earnings and market cap to account for variations in performance, however, UNAM’s negative earnings lower the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Cheldin is paid aptly compared to those in similar-sized companies. Putting everything together, although UNAM is loss-making, it seems like the CEO’s pay is reflective of the appropriate level.