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.
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.
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:
- 1. Governance: To find out more about SRG’s governance, look through our infographic report of the company’s board and management.
- 2. 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.
- 3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of SRG? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!