Leading The Mosaic Company (NYSE:MOS) as the CEO, Joc O’Rourke took the company to a valuation of US$11.36b. 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 O’Rourke’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 MOS’s performance been like?MOS can create value to shareholders by increasing its profitability, which in turn is reflected into the share price and the investor’s ability to sell their shares at higher capital gains. Over the last year MOS delivered negative earnings of -US$93.4m , compared to the previous year’s positive earnings. Moreover, MOS hasn’t always been loss-making, with an average EPS of US$2.44 over the past five years. During times of unprofitability the company may be going through a period of reinvestment and growth, or it can be an indication of some headwind. In any event, CEO compensation should mirror the current state of the business. In the most recent financial report, O’Rourke’s total remuneration grew by 14.1% to US$8.4m. Moreover, O’Rourke’s pay is also made up of 59.87% non-cash elements, which means that fluctuations in MOS’s share price can impact the real level of what the CEO actually receives.
Is MOS overpaying the CEO?Even though no standard benchmark exists, since compensation should account for specific factors of the company and market, we can fashion a high-level thresold to see if MOS deviates substantially from its peers. This outcome helps investors ask the right question about O’Rourke’s incentive alignment. Typically, a US large-cap has a value of $64.9B, creates earnings of $3.6B and remunerates its CEO circa $12.2M annually. Typically I would use earnings and market cap to account for variations in performance, however, MOS’s negative earnings reduces the effectiveness of this method. Analyzing the range of remuneration for large-cap executives, it seems like O’Rourke is paid aptly compared to those in similar-sized companies. Overall, even though MOS is loss-making, it seems like the CEO’s pay is reflective of the appropriate level.
In the upcoming year’s AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose an executive pay raise. Will this raise take O’Rourke’s pay beyond the bound of reasonableness, or will it help in retaining the talented executive? Being proactive in governance decisions is a key part to investing, and collectively, investors can make a big difference. 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 MOS’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 MOS? 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.