Is Ligand Pharmaceuticals Incorporated’s (NASDAQ:LGND) CEO Being Overpaid?

John Higgins has been the CEO of Ligand Pharmaceuticals Incorporated (NASDAQ:LGND) since 2007. First, this article will compare CEO compensation with compensation at similar sized companies. Next, we’ll consider growth that the business demonstrates. And finally we will reflect on how common stockholders have fared in the last few years, as a secondary measure of performance. The aim of all this is to consider the appropriateness of CEO pay levels.

Check out our latest analysis for Ligand Pharmaceuticals

How Does John Higgins’s Compensation Compare With Similar Sized Companies?

Our data indicates that Ligand Pharmaceuticals Incorporated is worth US$1.9b, and total annual CEO compensation was reported as US$6.8m for the year to December 2019. That’s a fairly small increase of 7.4% on year before. We think total compensation is more important but we note that the CEO salary is lower, at US$648k. We further remind readers that the CEO may face performance requirements to receive the non-salary part of the total compensation. We looked at a group of companies with market capitalizations from US$1.0b to US$3.2b, and the median CEO total compensation was US$4.7m.

Now let’s take a look at the pay mix on an industry and company level to gain a better understanding of where Ligand Pharmaceuticals stands. Talking in terms of the sector, salary represented approximately 23% of total compensation out of all the companies we analysed, while other remuneration made up 77% of the pie. It’s interesting to note that Ligand Pharmaceuticals allocates a smaller portion of compensation to salary in comparison to the broader industry.

As you can see, John Higgins is paid more than the median CEO pay at companies of a similar size, in the same market. However, this does not necessarily mean Ligand Pharmaceuticals Incorporated is paying too much. We can get a better idea of how generous the pay is by looking at the performance of the underlying business. The graphic below shows how CEO compensation at Ligand Pharmaceuticals has changed from year to year.

NasdaqGM:LGND CEO Compensation June 5th 2020
NasdaqGM:LGND CEO Compensation June 5th 2020

Is Ligand Pharmaceuticals Incorporated Growing?

Over the last three years Ligand Pharmaceuticals Incorporated has seen earnings per share (EPS) move in a positive direction by an average of 76% per year (using a line of best fit). It saw its revenue drop 54% over the last year.

This demonstrates that the company has been improving recently. A good result. The lack of revenue growth isn’t ideal, but it is the bottom line that counts most in business. You might want to check this free visual report on analyst forecasts for future earnings.

Has Ligand Pharmaceuticals Incorporated Been A Good Investment?

Ligand Pharmaceuticals Incorporated has not done too badly by shareholders, with a total return of 4.8%, over three years. But they probably wouldn’t be so happy as to think the CEO should be paid more than is normal, for companies around this size.

In Summary…

We compared the total CEO remuneration paid by Ligand Pharmaceuticals Incorporated, and compared it to remuneration at a group of similar sized companies. Our data suggests that it pays above the median CEO pay within that group.

However, the earnings per share growth over three years is certainly impressive. Looking at the same time period, we think that the shareholder returns are respectable. So, considering the EPS growth we do not wish to criticize the level of CEO compensation, though we’d recommend further research on management. On another note, Ligand Pharmaceuticals has 2 warning signs (and 1 which is concerning) we think you should know about.

If you want to buy a stock that is better than Ligand Pharmaceuticals, this free list of high return, low debt companies is a great place to look.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.