Bill Weber took the reins as CEO of The KEYW Holding Corporation’s (NASDAQ:KEYW) and grew market cap to $337.59M recently. 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. Today we will assess Weber’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 KEYW Holding

What has KEYW’s performance been like?

KEYW 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. Recently, KEYW delivered negative earnings of -$27.8M , compared to the previous year’s positive earnings. But on average, KEYW has been loss-making in the past, with a 5-year average EPS of -$0.19. During times of unprofitability the company may be incurring a period of reinvestment and growth, or it can be an indication of some headwind. In any event, CEO compensation should mirror the current condition of the business. From the latest report, Weber’s total compensation fell by more than half of the prior year’s level, to $896,800. Furthermore, Weber’s pay is also comprised of non-cash elements, which means that fluctuations in KEYW’s share price can move the real level of what the CEO actually takes home at the end of the day.

What’s a reasonable CEO compensation?

Despite the fact that no standard benchmark exists, since compensation should account for specific factors of the company and market, we can estimate a high-level thresold to see if KEYW deviates substantially from its peers. This outcome helps investors ask the right question about Weber’s incentive alignment. On average, a US small-cap has a value of $1B, produces earnings of $96M, and remunerates its CEO circa $2.7M per annum. Typically I’d use market cap and profit as factors determining performance, however, KEYW’s negative earnings lower the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Weber is being paid within the bounds of reasonableness. Putting everything together, even though KEYW is unprofitable, it seems like the CEO’s pay is sound.

Next Steps:

Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in KEYW, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. 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 WOW’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 KEYW? 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.