Stock Analysis

How Should Investors React To Ligand Pharmaceuticals' (NASDAQ:LGND) CEO Pay?

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NasdaqGM:LGND
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John Higgins has been the CEO of Ligand Pharmaceuticals Incorporated (NASDAQ:LGND) since 2007, and this article will examine the executive's compensation with respect to the overall performance of the company. This analysis will also look to assess whether the CEO is appropriately paid, considering recent earnings growth and investor returns for Ligand Pharmaceuticals.

See our latest analysis for Ligand Pharmaceuticals

Comparing Ligand Pharmaceuticals Incorporated's CEO Compensation With the industry

At the time of writing, our data shows that Ligand Pharmaceuticals Incorporated has a market capitalization of US$1.6b, and reported total annual CEO compensation of US$6.8m for the year to December 2019. That's a modest increase of 7.4% on the prior year. While this analysis focuses on total compensation, it's worth acknowledging that the salary portion is lower, valued at US$648k.

On comparing similar companies from the same industry with market caps ranging from US$1.0b to US$3.2b, we found that the median CEO total compensation was US$3.3m. This suggests that John Higgins is paid more than the median for the industry. What's more, John Higgins holds US$24m worth of shares in the company in their own name, indicating that they have a lot of skin in the game.

Component20192018Proportion (2019)
Salary US$648k US$627k 10%
Other US$6.1m US$5.7m 90%
Total CompensationUS$6.8m US$6.3m100%

Talking in terms of the industry, salary represented approximately 25% of total compensation out of all the companies we analyzed, while other remuneration made up 75% of the pie. Ligand Pharmaceuticals pays a modest slice of remuneration through salary, as compared to the broader industry. It's important to note that a slant towards non-salary compensation suggests that total pay is tied to the company's performance.

ceo-compensation
NasdaqGM:LGND CEO Compensation December 18th 2020

Ligand Pharmaceuticals Incorporated's Growth

Ligand Pharmaceuticals Incorporated has seen its earnings per share (EPS) increase by 19% a year over the past three years. In the last year, its revenue is down 6.0%.

This demonstrates that the company has been improving recently and is good news for the shareholders. It's always a tough situation when revenues are not growing, but ultimately profits are more important. Historical performance can sometimes be a good indicator on what's coming up next but if you want to peer into the company's future you might be interested in this free visualization of analyst forecasts.

Has Ligand Pharmaceuticals Incorporated Been A Good Investment?

Given the total shareholder loss of 26% over three years, many shareholders in Ligand Pharmaceuticals Incorporated are probably rather dissatisfied, to say the least. Therefore, it might be upsetting for shareholders if the CEO were paid generously.

In Summary...

As we touched on above, Ligand Pharmaceuticals Incorporated is currently paying its CEO higher than the median pay for CEOs of companies belonging to the same industry and with similar market capitalizations. However, we must not forget that the EPS growth has been very strong, but shareholder returns — over the same period — have been disappointing. Although we'd stop short of calling it inappropriate, we think John is earning a very handsome sum.

CEO compensation can have a massive impact on performance, but it's just one element. That's why we did some digging and identified 1 warning sign for Ligand Pharmaceuticals that you should be aware of before investing.

Arguably, business quality is much more important than CEO compensation levels. So check out this free list of interesting companies that have HIGH return on equity and low debt.

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