How CEO's of Biotech are Incentivized and What This Means for Investors

LAS VEGAS, February 13, 2018 /PRNewswire/ --

FN Media Group Presents Microcapspeculators.com News Commentary 

CEO's across the biotechnology industry have varying wages. Business news is flooded with reports regarding the salaries, bonuses and stock option packages awarded CEO's of publicly traded companies. Making sense of these numbers can be difficult. Understanding how CEOs are incentivized is an extremely important aspect to consider when investing in a stock. Executives who are inappropriately compensated, whether too low or too high, lack the incentive to perform in the best interest of the Company's shareholders. Compensation should always be structured in a way to promote value-creation to shareholders. Included in today's commentary:Propanc Biopharma, Inc. (OTC: PPCB), Kura Oncology, Inc. (NASDAQ: KURA), Esperion Therapeutics, Inc. (NASDAQ: ESPR), Juno Therapeutics, Inc. (NASDAQ: JUNO), Verastem, Inc. (NASDAQ: VSTM).

How does one determine a healthy compensation package for a CEO? The first step is accessing compensation information which can be found in the public filings with the Securities and Exchange Commission (SEC). It is mandated by the SEC that all public companies disclose the amount they pay their executives, how the payment is structured and who is responsible for determining the process. These filings can be lengthy and convoluted.

One of the most common ways to evaluate executive compensation is to compare pay to performance. Comparing a CEO's pay to stock performance can verify whether an executive is overpaid. If the change in the stock price outperforms the change in pay, the executive is not considered to be overpaid. Trends that show executives who are receiving a higher pay rate than performance rates, usually means overcompensation for underperformance. This negatively affects investors both in money paid out and incentive to perform.

Industry peer to peer comparison is another effective way to evaluate appropriate CEO compensation as industry leaders should be paid similarly to their peers. Sometimes a leader in the industry or the founder of a Company can make more than their peers, in this case it makes sense for industry moguls to receive higher wages.

When considering your next investment, make sure to determine pay versus performance and peer to peer salaries for key executives. Executive compensation is a very important consideration for investors because an improperly compensated executive could in turn cost the shareholders money while the CEO lacks the ability or care to encourage growth and increase profits.