John Winfield took the reins as CEO of The InterGroup Corporation's (NASDAQ:INTG) and grew market cap to US$56.71M recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. Today we will assess Winfield’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. See our latest analysis for InterGroup
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Did Winfield create value?
Profitability of a company is a strong indication of INTG's ability to generate returns on shareholders' funds through corporate activities. In this exercise, I will use profits as a proxy for Winfield's performance. In the past year, INTG released negative earnings of -US$2.74M . However, this is an improvement on prior year’s loss of -US$3.83M, which may signal a turnaround since INTG has been loss-making for the past five years, on average, with an EPS of -US$0.64. As profits are moving up and up, CEO pay should represent Winfield's valued-adding activities. Over the same period Winfield's total remuneration dropped by more than half of the prior year's level, to US$935.00K. NasdaqCM:INTG Past Future Earnings Mar 22nd 18
What's a reasonable CEO compensation?
Even though there is no cookie-cutter approach, as remuneration should be tailored to the specific company and market, we can evaluate a high-level yardstick to see if INTG is an outlier. This outcome can help shareholders ask the right question about Winfield’s incentive alignment. Typically, a US small-cap has a value of $1B, generates earnings of $96M, and pays its CEO circa $2.7M per year. Normally I would look at market cap and earnings as a proxy for performance, however, INTG's negative earnings reduces the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Winfield is remunerated sensibly relative to peers. Putting everything together, though INTG is unprofitable, it seems like the CEO’s pay is appropriate.
Next Steps:
Hopefully this article has given you insight on how shareholders should think about INTG's governance policies such as CEO pay. As an investor, you have the right to understand how the board thinks about management incentives, and also the right to vote for and against substantial CEO pay changes. Governance is a big factor in investing, and I encourage you to dig deeper into those that represent your voice on the board. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of INTG? 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.
About NasdaqCM:INTG
InterGroup
Through its subsidiaries, operates a hotel under the Hilton San Francisco Financial District name in San Francisco, California.
