David Hanna took the reins as CEO of Atlanticus Holdings Corporation’s (NASDAQ:ATLC) and grew market cap to $33.42M 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 Hanna’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. See our latest analysis for Atlanticus Holdings
Did Hanna create value?
Earnings is a powerful indication of ATLC’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Hanna’s performance in the past year. Most recently, ATLC released negative earnings of -$24.6M , which is a further decline from prior year’s loss of -$6.3M. Moreover, on average, ATLC has been loss-making in the past, with a 5-year average EPS of -$0.68. During times of negative earnings, 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 mirror the current condition of the business. From the latest financial statments, Hanna’s total compensation declined by a non-trivial rate of -22.96%, to $389,926. Although I couldn’t find information on the composition of Hanna’s pay, if some portion were non-cash items such as stocks and options, then fluxes in ATLC’s share price can affect the actual level of what the CEO actually takes home at the end of the day.
Is ATLC overpaying the CEO?
Though no standard benchmark exists, as remuneration should account for specific factors of the company and market, we can evaluate a high-level thresold to see if ATLC is an outlier. This outcome can help direct shareholders to ask the right question about Hanna’s incentive alignment. Normally, a US small-cap is worth around $1B, creates earnings of $96M, and pays its CEO circa $2.7M per year. Usually I’d use market cap and profit as factors determining performance, however, ATLC’s negative earnings reduces the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Hanna is remunerated sensibly relative to peers. Putting everything together, though ATLC is unprofitable, it seems like the CEO’s pay is appropriate.
What this means for you:
Are you a shareholder? Hopefully this article has given you insight on how shareholders should think about ATLC’s governance policies such as CEO pay. As an investor, you have the right to understand how the board thinks about management incentives, and also the right to vote for and against substantial CEO pay changes. Governance is a big factor in investing, and I encourage you to dig deeper into those that represent your voice on the board. To find out more about ATLC’s governance, look through our infographic report of the company’s board and management.