USA Truck, Inc. held its annual meeting of shareholders on May 21, 2020, where shareholders voted on advisory approval of the company's executive compensation. However, this year saw the proportion of approval at a lower rate than ever before. This report provides the reasons why USA Truck, Inc. should have seen it coming.
Increasingly, shareholders and institutional investors expect executive compensation to be linked to performance of the company, and remuneration committees deploy various methods and tools to determine executive compensation plans.
CGLytics, and its strategic partnership with Glass Lewis, has developed an array of tools for remunerations committees and boards to utilize, including Pay for Performance modeling. Replicating Glass Lewis' Pay for Performance analysis used in their proxy papers, remuneration committees can visualize (ahead of time) how shareholders will react to compensation plans and craft around the predicted response.
In prior years USA Truck, Inc. has achieved a Glass Lewis Pay (Pay-for-Performance) Grade of C, indicating a fair balance between performance and executive pay.
However, in 2019 the company received a score of F, indicating an unaligned increase to executive compensation in comparison to company performance.
Glass Lewis Pay Grade of USA Truck, Inc.
Source: Glass Lewis CEO compensation analysis found in the CGLytics platform
This was reflected in shareholder votes of advisory approval of the company's executive compensation. In 2017 and 2018 the ratio of shareholder approval to disapproval was 45:1 and 55:1 respectively, in 2019 this changed to 2:1. While the majority of votes were cast in approval of executive compensation, this stark change compared to prior years indicates future problems for the board of USA Truck, Inc. and could serve as a cautionary tale.
The chart below details in absolute numbers the changes in shareholder approval gathered from USA Truck, Inc.'s SEC filings via CGLytics.
Shareholder Approval and Disapproval of Executive Compensation for USA Truck, Inc
Source: CGLytics data and analytics
This change may be explained by poor performance, the introduction of an additional 2019 EPS (Earnings Per Share) Cash Incentive Plan, and poor Pay for Performance metrics.
Between 2018 and 2019, USA Truck, Inc. granted an additional cash bonus program; a performance driven cash incentive plan. This, along with traditional increases to the existing executive compensation plan, dramatically increased the potential payouts to executives. Using the Pay for Performance tools in the CGLytics software platform, it is possible to model how executive compensation reflects both performance and a selected peer groups.
Glass Lewis Granted Executive Compensation of USA Truck, Inc. against Peers
Source: Glass Lewis CEO Pay for Performance analysis found in the CGLytics platform
The above chart depicts the granted executive compensation of USA Truck, Inc. and its peer companies, which is the potential pay described in company performance goals; the realized pay of USA Truck, Inc. and peer companies, which is the payout based on achievement of goals; and a line depicting the EPS of USA Truck, Inc. and peer companies. These peer companies are generated and determined by Glass Lewis, found in the CGLytics platform. What can be drawn from this analysis is that in 2019, USA Truck, Inc. had a compensation plan that was out of line with its peers.
CGLytics' powerful analytical tools enable a remuneration committee to model executive compensation in comparison to peers across an array of metrics. Using the Glass Lewis Pay for Performance snapshot tool, it is easy to visualize how USA Truck, Inc. underperformed compared to its Glass Lewis determined peers.
Glass Lewis Shareholder Wealth and Business Performance of USA Truck, Inc. against Peers
Source: Glass Lewis CEO Pay for Performance analysis found in the CGLytics platform
In 2019 USA Truck, Inc. saw a dramatic decrease in Total Shareholder Return (TSR), compared to a marginal increase of TSR by its peers. As well as a large Operating Cash Flow (OCF) increase, but one that was not reflected in shareholder approval. USA Truck, Inc. underperformed in Return on Assets (ROA), a comparison of business accomplishment in comparison to company assets, similarly it underperformed in Return on Equity (ROE).
Performance-based incentive plans are a crucial tool in the renumeration committee's arsenal for encouraging persistent growth and success. In the case of USA Truck, Inc. this tool was applied in response to weakening performance to the extent that USA Truck, Inc. fell to the bottom position within a group of industry peers. Plotting USA Truck, Inc. against peers comparing granted compensation to EBITDA (earnings before interest, taxes, depreciation and amortization). It had a 31st percentile rating for granted executive compensation, with a 0th percentile rating for EBITDA.
USA Truck, Inc. Pay for Performance alignment - CEO Total granted compensation (3Y)
Source: CGLytics data and analytics
In terms of realized pay (the payout for attaining certain goals) USA Truck, Inc. was again misaligned compared to its peer. The EBITDA for the company ranked 0 percentile among its peers, while the Total Realized compensation ranked 23rd percentile.
USA Truck, Inc. Pay for Performance alignment - CEO Total realized compensation (3Y)
Source: CGLytics data and analytics
Although USA Truck, Inc. did secure an advisory approval for its executive compensation program, this change to a more tepid support should act as a warning, not only to them, but to other remuneration committees as well. When making compensation decisions and plans, CGlytics' array of powerful data analytical tools, including Glass Lewis Pay Grade modeling, can be used to forecast shareholder approval, view how a company's compensation falls in line with its peers, and predict proxy advisor recommendations prior to the proxy season.
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