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Steven Powell took the helm as Cambridge Cognition Holdings Plc’s (AIM:COG) CEO and grew market cap to UK£22.96M 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 Powell’s pay and compare this to the company’s performance over the same period, as well as measure it against other UK CEOs leading companies of similar size and profitability. See our latest analysis for Cambridge Cognition Holdings
What has COG’s performance been like?
Profitability of a company is a strong indication of COG’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Powell’s performance. Over the last year COG produced negative earnings of -UK£257.00K , compared to the previous year’s positive earnings. Though, on average, COG has been loss-making in the past, with a 5-year average EPS of -UK£0.082. In the situation of unprofitability 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 echo the current state of the business. From the latest financial statments, Powell’s total compensation more than doubled, reaching UK£174.00K , though from a small basis. Although I couldn’t find information on the composition of Powell’s pay, if some portion were non-cash items such as stocks and options, then fluxes in COG’s share price can affect the true level of what the CEO actually takes home at the end of the day.
Is COG’s CEO overpaid relative to the market?
Despite the fact that there is no cookie-cutter approach, as remuneration should account for specific factors of the company and market, we can determine a high-level benchmark to see if COG deviates substantially from its peers. This exercise can help shareholders ask the right question about Powell’s incentive alignment. Normally, a UK small-cap is worth around £696M, produces earnings of £67M, and remunerates its CEO at roughly £1M per year. Typically I would use earnings and market cap to account for variations in performance, however, COG’s negative earnings reduces the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Powell is paid aptly compared to those in similar-sized companies. Overall, even though COG is loss-making, it seems like the CEO’s pay is reflective of the appropriate level.