Leading Royal Gold Inc (NASDAQ:RGLD) as the CEO, Tony Jensen took the company to a valuation of US$5.51b. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. 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 Jensen’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.
What has been the trend in RGLD’s earnings?Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. In the past year, RGLD delivered negative earnings of -US$119.76m , compared to the previous year’s positive earnings. Additionally, RGLD hasn’t always been loss-making, with an average EPS of US$0.75 over the past five years. In the situation of negative earnings, the company may be going through a period of reinvestment and growth, or it can be a signal of some headwind. In any event, CEO compensation should emulate the current state of the business. In the latest report, Jensen’s total remuneration fell by -8.16%, to US$3.30m. Furthermore, Jensen’s pay is also made up of 54.95% non-cash elements, which means that variabilities in RGLD’s share price can affect the actual level of what the CEO actually receives.
What’s a reasonable CEO compensation?
Though there is no cookie-cutter approach, as remuneration should be tailored to the specific company and market, we can gauge a high-level base line to see if RGLD is an outlier. This exercise can help shareholders ask the right question about Jensen’s incentive alignment. Normally, a US mid-cap is worth around $5B, creates earnings of $290M and pays its CEO at roughly $5.3M per year. Usually I’d use market cap and profit as factors determining performance, however, RGLD’s negative earnings lower the effectiveness of this method. Analyzing the range of remuneration for mid-cap executives, it seems like Jensen is remunerated sensibly relative to peers. Overall, though RGLD is unprofitable, it seems like the CEO’s pay is reflective of the appropriate level.
In order to determine whether or not you should invest in RGLD, your thesis should be built on fundamentals. Even though CEO pay isn’t technically a key concern, it could serve as an indication as to how board members align incentives and how they think about setting policies. These issues directly impacts how RGLD makes money, and factors impacting your return on investment. If you have not done so already, I urge you to complete your research by taking a look at the following:
- Governance: To find out more about RGLD’s governance, look through our infographic report of the company’s board and management.
- 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.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of RGLD? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.