Is Seritage Growth Properties’s (NYSE:SRG) CEO Overpaid Relative To Its Peers?

Ben Schall took the helm as Seritage Growth Properties’s (NYSE:SRG) CEO and grew market cap to US$2.24B recently. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. 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 Schall’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. View our latest analysis for Seritage Growth Properties

Did Schall create value?

Earnings is a powerful indication of SRG’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Schall’s performance in the past year. Most recently, SRG produced negative earnings of -US$45.55M . But this is an improvement on prior year’s loss of -US$51.68M, which may signal a turnaround since SRG has been loss-making for the past five years, on average, with an EPS of -US$1.74. Since earnings are heading towards the right direction, CEO pay should represent Schall’s value creation for shareholders. Over the same period Schall’s total compensation fell by more than half of the prior year’s level, to US$2.33M. Furthermore, Schall’s pay is also made up of non-cash elements, which means that fluxes in SRG’s share price can affect the actual level of what the CEO actually collects at the end of the year.
NYSE:SRG Past Future Earnings Feb 16th 18
NYSE:SRG Past Future Earnings Feb 16th 18

Is SRG’s CEO overpaid relative to the market?

Though there is no cookie-cutter approach, as remuneration should account for specific factors of the company and market, we can estimate a high-level thresold to see if SRG deviates substantially from its peers. This exercise can help shareholders ask the right question about Schall’s incentive alignment. Generally, a US mid-cap is worth around $5B, creates earnings of $290M and pays its CEO circa $5.3M annually. Typically I would look at market cap and earnings as a proxy for performance, however, SRG’s negative earnings lower the usefulness of my formula. Given the range of pay for mid-cap executives, it seems like Schall is remunerated sensibly relative to peers. Putting everything together, although SRG is loss-making, it seems like the CEO’s pay is reflective of the appropriate level.

Next Steps:

Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in SRG, 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 urge you to complete your research by taking a look at the following: