Olaf Karasch took the reins as CEO of TOR Minerals International Inc’s (NASDAQ:TORM) and grew market cap to $19.83M recently. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. 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 Karasch’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 TOR Minerals International
What has TORM’s performance been like?
Earnings is a powerful indication of TORM’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Karasch’s performance in the past year. Most recently, TORM produced negative earnings of -$0.3M . But this is an improvement on prior year’s loss of -$5.3M, though TORM hasn’t always been loss-making, given its average EPS of $0.23 over the past five years. Since earnings are heading towards the right direction, CEO pay should be reflective of Karasch’s value creation for shareholders. Over the same period Karasch’s total remuneration grew by 8.21% to $387,477. Furthermore, Karasch’s pay is also made up of 22.38% non-cash elements, which means that variabilities in TORM’s share price can affect the actual level of what the CEO actually receives.
Is TORM overpaying the CEO?
Though one size does not fit all, as compensation should account for specific factors of the company and market, we can estimate a high-level benchmark to see if TORM is an outlier. This outcome can help shareholders ask the right question about Karasch’s incentive alignment. Generally, a US small-cap has a value of $1B, generates earnings of $96M, and remunerates its CEO at roughly $2.7M per annum. Usually I’d use market cap and profit as factors determining performance, however, TORM’s negative earnings lower the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Karasch is paid aptly compared to those in similar-sized companies. Putting everything together, although TORM is unprofitable, it seems like the CEO’s pay is sound.
What this means for you:
Are you a shareholder? You can breathe easy knowing that shareholder funds aren’t being used to overpay TORM’s CEO. However, on the flipside, you should ask whether Karasch 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 TORM’s governance, look through our infographic report of the company’s board and management.