Who’s a Fat Cat?

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Tom Konrad CFA

fat cat photo
A Fat Cat. Photo of “Cauchy” by author.

Friday, in a generally positive article about Lime Energy (NASD:LIME), I noted that the top five executives at the company seemed overpaid in comparison to one of their nearest rivals, Orion Energy Systems (NYSE:OESX).  Since this was not based on in-depth research, and is a pretty serious allegation about a company I’m otherwise enthusiastic about, I decided to do some more digging.

Who is a Fat Cat?

Using data on executive pay from Morningstar, I compared executive pay at Lime not only to Orion Energy, but to the four other energy management companies I covered in my series of executive interviews last year: World Energy Solutions (NASD:XWES), EnerNOC (NASD:ENOC), Comverge (NASD:COMV), and Ameresco (NYSE:AMRC).  The results are shown in the chart below:

Executive Pay 2009-11

The chart shows total compensation of the top five executives of each company, in millions of dollars, over the last five years.  I’ve also included the three-year total return for each stock, and the total of all three year’s pay as a percentage of the current market capitalization (since larger companies can afford larger pay packages.)

I chose to use only the last three years’ of compensation because that was the most available for Ameresco.  I included the stock price returns, since this is an indicator of how effective share option awards have been at reducing executive pay as the share price falls.  Since all these companies have had falling prices over the last three years, we would expect to also see falling pay.  Note that the return of World Energy Solutions is a one year, not a three year return, as the company got its NASDAQ listing only 2010.

Who is the Most Overpaid?

Looking at the chart, it’s clear that my initial impression that Lime executives are overpaid in comparison to Orion executives was incorrect, because it was based on only the most recent year’s compensation.  Compensation of Lime executives falls in the middle of the pack, although the generally rising trend of compensation at Lime is not what we would expect given the poor stock performance, but it could be accounted for because of various timing issues.  While the rising trend would be worth looking into if it were to continue without a stock price revival, it is not alarming when you consider that compensation fell drastically from $3.7 million in 2007 (when the stock shot up) to $1.2 and $1.15 million in 2008 and 2009 when the stock fell back.

The most overpaid executives are at Comverge and EnerNOC, both in absolute millions of dollars, and as a percentage of market capitalization.  Comverge agreed to be acquired by a private equity group H.I.G. Capital LLC in March, so I expect that this particular group of overpaid executives will be out the door soon.  EnerNOC execs should probably go the same way, but with such hefty pay packets, executives there have every incentive to hang on as long as possible, as did executives at Comverge (just ask Brad Tirpak, who led a multi-year campaign to remove them.)

Who’s a Slim Cat?

fat cat photo
A Slim Cat. Photo of “Cauchy” by author.

The best bargain for shareholders is the management team at Ameresco (NYSE:AMRC).   This might be surprising, since George Sakellaris, founder, President and CEO, has complete control of Ameresco’s board because he owns a large block of shares with superior voting rights.  But my impression from talking this slim cat (he’s a runner) is that he keeps building energy service companies in order to create something great, not to suck shareholders dry.

With Sakellaris as the driver, investors should be happy pay his quite reasonable salary and hop on for the ride.  Incidentally, Ameresco’s stock is once again looking attractive after an earnings miss on May 8th.

This article first appeared on the author’s Forbes.com Green Stocks blog.


DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.


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