Does Randolph Bancorp Inc's (NASDAQ:RNDB) CEO Pay Reflect Performance?

Jim McDonough took the reins as CEO of Randolph Bancorp Inc's (NASDAQ:RNDB) and grew market cap to US$92.72m recently. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. I will break down McDonough’s pay and compare this to the company’s performance over the same period, as well as measure it against other US CEOs leading companies of similar size and profitability. Check out our latest analysis for Randolph Bancorp

What has RNDB's performance been like?

Profitability of a company is a strong indication of RNDB's ability to generate returns on shareholders' funds through corporate activities. In this exercise, I will use profits as a proxy for McDonough's performance. Over the last year RNDB released negative earnings of -US$2.39m , compared to the previous year's positive earnings. However, on average, RNDB has been loss-making in the past, with a 5-year average EPS of -US$0.094. During times of negative earnings, the company may be going through a period of reinvestment and growth, or it can be an indication of some headwind. In any case, CEO compensation should emulate the current state of the business. From the latest report, McDonough's total compensation increased by 27.28% to US$485.31k.

What's a reasonable CEO compensation?

While there is no cookie-cutter approach, since remuneration should be tailored to the specific company and market, we can fashion a high-level yardstick to see if RNDB deviates substantially from its peers. This outcome can help shareholders ask the right question about McDonough’s incentive alignment. Generally, a US small-cap is worth around $1B, produces earnings of $96M, and remunerates its CEO at roughly $2.7M per annum. Typically I would look at market cap and earnings as a proxy for performance, however, RNDB's negative earnings lower the usefulness of my formula. Given the range of pay for small-cap executives, it seems like McDonough is paid aptly compared to those in similar-sized companies. On the whole, though RNDB is loss-making, it seems like the CEO’s pay is sound.

Next Steps:

My conclusion is that McDonough is not being overpaid. But your role as a shareholder should not end here. As above, this is a relatively simplistic calculation using high-level benchmarket. Proactive shareholders should question their representatives (i.e. the board of directors) how they think about the CEO's incentive alignment with shareholders and how they balance this with retention and reward. If you have not done so already, I urge you to complete your research by taking a look at the following:

1. Governance: To find out more about RNDB's governance, look through our infographic report of the company's board and management.
2. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of RNDB? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.