What has SKT’s performance been like?Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Over the last year SKT produced a profit of US$67.33m , which is a rather significant decline from its prior year’s profit (excluding extraordinary items) of US$187.00m. However, SKT has strived to sustain a strong track record of generating profits, given its average EPS of US$1.16 over the past couple of years. During times of diminishing earnings, the company may be facing a period of reinvestment and growth, or it can be a sign of some headwind. Regardless, CEO compensation should emulate the current state of the business. From the latest report, Tanger’s total compensation fell by a minor -3.80%, to US$7.02m. Furthermore, Tanger’s pay is also made up of 65.03% non-cash elements, which means that variabilities in SKT’s share price can move the real level of what the CEO actually receives.
Is SKT overpaying the CEO?
Though there is no cookie-cutter approach, as compensation should account for specific factors of the company and market, we can evaluate a high-level thresold to see if SKT deviates substantially from its peers. This outcome can help direct shareholders to ask the right question about Tanger’s incentive alignment. Generally, a US mid-cap has a value of $5B, produces earnings of $290M and remunerates its CEO circa $5.3M per annum. Taking into account SKT’s size and performance, in terms of market cap and earnings, it seems that Tanger is remunerated above the average US mid-cap CEO. Though this is merely a basic calculation, shareholders should be aware of this expense.
What this means for you:
SKT may be paying its CEO above-market rates due to many reasons – retention, reward, or inflated non-cash components of total pay. However, shareholders also should be aware of what the appropriate level is. Boards should be transparent with how they structure CEO pay given that there should be nothing to hide in public companies. Hopefully this analysis has given you the basis for questioning the next CEO pay raise. 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 SKT’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 SKT? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!