Gary Goldberg took the helm as Newmont Mining Corporation’s (NYSE:NEM) CEO and grew market cap to US$19.65b recently. 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. Today we will assess Goldberg’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.
Did Goldberg create value?Profitability of a company is a strong indication of NEM’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Goldberg’s performance. In the past year, NEM released an earnings of US$40.00m , moving NEM from negative territory of -US$138.00m in the prior year to profitability. Though, the variability in earnings over the last few years makes us less confidence in forecasting future outcome based on past data. Since earnings are heading towards the right direction, CEO pay should represent Goldberg’s hard work. During this period Goldberg’s total remuneration dropped by -16.65%, to US$13.83m. Moreover, Goldberg’s pay is also made up of 72.14% non-cash elements, which means that fluctuations in NEM’s share price can impact the actual level of what the CEO actually collects at the end of the year.
Is NEM overpaying the CEO?
Even though there is no cookie-cutter approach, as remuneration should account for specific factors of the company and market, we can gauge a high-level benchmark to see if NEM deviates substantially from its peers. This outcome can help direct shareholders to ask the right question about Goldberg’s incentive alignment. Normally, a US large-cap has a value of $64.9B, generates earnings of $3.6B and pays its CEO circa $12.2M per annum. Accounting for NEM’s size and performance, in terms of market cap and earnings, it appears that Goldberg is remunerated above other US CEOs of profitable large-caps. Even though this is merely a basic calculation, investors should be cognizant of this expense.
What this means for you:
Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in NEM, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
- Governance: To find out more about NEM’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 NEM? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!