Will Eglin took the helm as Lexington Realty Trust’s (NYSE:LXP) CEO and grew market cap to US$2.09b 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 Eglin’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 LXP’s performance been like?LXP 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. Recently, LXP produced a profit of US$22.71m , which is a rather significant decline from its prior year’s profit (excluding extraordinary items) of US$81.73m. However, LXP has strived to maintain a good track record of profitability, given its average EPS of US$0.27 over the past couple of years. During times of falling profits, the company may be incurring a period of reinvestment and growth, or it can be an indication of some headwind. In any case, CEO compensation should represent the current condition of the business. From the latest financial report, Eglin’s total remuneration declined by a marginal -2.60%, to US$3.25m. Furthermore, Eglin’s pay is also made up of 47.30% non-cash elements, which means that fluctuations in LXP’s share price can impact the real level of what the CEO actually receives.
Is LXP’s CEO overpaid relative to the market?
Even though one size does not fit all, since compensation should be tailored to the specific company and market, we can gauge a high-level thresold to see if LXP deviates substantially from its peers. This exercise helps investors ask the right question about Eglin’s incentive alignment. On average, a US mid-cap is worth around $5B, produces earnings of $290M and remunerates its CEO at roughly $5.3M per annum. Considering the size of LXP in terms of market cap, as well as its performance, using earnings as a proxy, it appears that Eglin is paid on a similar level to other US CEOs of mid-caps, on average. This could mean Eglin is paid a suitable level.
In order to determine whether or not you should invest in LXP, 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 LXP makes money, and factors impacting your return on investment. 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 LXP’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 LXP? 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 email@example.com.