Replies to post #348649 on Elite Pharmaceuticals Inc (ELTP)

[Gman24]

WeeZuhl is this the same scenario when other officers get paid in shares?...thanks

[wetscent]

slickster

[jour_trader]

I have mentioned something similar in the past. He has accumulated more company ownership by communicating less to investors. He is actually incentivized to keep the share price at depressed levels vs other CEOs that have typical incentives to appreciate the share price over a given share price basis. The company should stop the payment in shares this year now that we are CFP and ensure goals are aligned with shareholders.

[HGiLS]

This is a clear act of INSIDER BYUING!!!

[no2koolaid]

Sorry, it's not that simple...

In regards to shares for salary, when the share price drops, Nasrat gets paid more.

Ah, nothing like a target rich environment...so let me begin to clear up any confusion for those unaware of how a number of things work when it comes to what is total comp (for the uninitiated, that is all compensation). Let’s start with the easiest...

First, a company car provided to anyone by any company falls under IRS taxable benefits. It is not free. Any vehicle provided to an employee is considered by the IRS as compensation and the recipient is taxed as such. The same goes for any moving expenses picked up by the company for anyone they decide they want to move…anyone! Most assuredly, they are nice perks but they ain’t free…I know because I have had them.

Second, beyond the aforementioned which is taxed as compensation, there is the other aspect of total executive compensation that should be better understood.

To begin with, the salary is paid on a weekly, bi-weekly or monthly basis. It is whatever has been agreed upon. For Nasrat it is $500k annually, nice but not extravagant. There are too many variables to say exactly what a pharma firm of Elite’s size would pay on average because the reality is struggling companies overpay to find someone to fix them. It would be accurate to say that Elite was struggling. I did an Altman-Z score for the company using < 2013 numbers and it was on track for BK. Their solvency and liquidity ratios were abysmal and there were no profitability ratios that would suggest the company was on track to survive. Yet, survive they did. But that is another discussion, one supported by Elite having achieved profitability. So, let’s stick with the correction of the misapprehension of compensation.

When seeking to replace their CEO, a struggling Elite agreed to pay Nasrat Hakim $500k per year, which is not exorbitant and, in case anyone is wondering, pharma CEOs for NON-Large companies average $750k per year – and to be clear, that is SALARY NOT TOTAL COMP. This segues into the other part of compensation – the bonus.

Nasrat gets another $500k in bonus that he has elected – ELECTED – to take in shares. Most CEOs take a combination of shares AND cash, some only take cash and what does that say about their beliefs? That Nasrat decided to only take shares says more about his belief in himself and what he can do for Elite. He made a big bet and he put up his own money and shares to ensure Elite was able to keep the doors open and their eyes on the prize.

In truth, all too many CEOs and senior executives hold TOO FEW shares, which is a major issue for analysts who think this speaks to the executives lack of confirmed belief in the longer term future of their respective company. So, without question Nasrat’s decision to be paid shares for his bonus speaks to how he views Elite’s future and, as he is at the helm and we are looking outside in, I think we should view that as an exceptionally good sign. (Any doubts, put yourself in the same position and ponder it.)

Now, as to the strike price of the shares he receives for his bonus, again the IRS and SEC regulate the process. So, there is no game to be played – no back dating share prices or deciding when to take the shares – illegal actions others have tried and been penalized and prosecuted for doing. That means the shares paid for a bonus are distributed at the time the bonus is due. Whatever the price of the shares is at that point is the price the CEO, CFO or anyone else getting a bonus and choosing shares will get them at. That means – if investors are paying attention – it should be clear that the shares for which Nasrat and others were bonused are likely to be underwater, just like many of us. In truth, I hope Nasrat is greedy because that means he will ensure ALL Elite’s shareholders will ultimately be rewarded.

On that point, let me add one more item before ending…

Mikah is not some monster hiding under the bed waiting for the right time to emerge and takeover Elite. If that was Nasrat’s intention, the plan is long past a due date. What we investors should be happy about is that Mikah stepped in to purchase the SunGen solid dose portfolio. This enables the avoidance of conflict between partners – something that might have occurred if another firm bought the portfolio. This also means that the manufacturing and commercialization process remains seamless and unaffected by office politics between partners.

There are a good many things about Elite that are being spouted without a faint resemblance to the actual world of business. Consequently, my effort on this board is to ensure that even fair minded but misinformed investors have greater clarity.