Ed Thomas took the helm as Tilly’s Inc’s (NYSE:TLYS) CEO and grew market cap to US$495.81m recently. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. I will break down Thomas’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 TLYS’s performance been like?TLYS 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. Most recently, TLYS released an earnings of US$16.08m , which is an increase of 16.04% from its prior year’s earnings of US$13.86m. This is an encouraging signal that TLYS aims to sustain a strong track record of generating profits regardless of the challenges. As profits are moving up and up, CEO pay should represent Thomas’s value creation for shareholders. In the same year, Thomas’s total remuneration rose by 48.17% to US$1.36m. In addition to this, Thomas’s pay is also made up of 29.62% non-cash elements, which means that variabilities in TLYS’s share price can move the true level of what the CEO actually collects at the end of the year.
Is TLYS’s CEO overpaid relative to the market?Despite the fact that one size does not fit all, since compensation should account for specific factors of the company and market, we can estimate a high-level yardstick to see if TLYS deviates substantially from its peers. This outcome can help direct shareholders to ask the right question about Thomas’s incentive alignment. On average, a US small-cap has a value of $1B, generates earnings of $96M, and remunerates its CEO at roughly $2.7M per year. Taking into account TLYS’s size and performance, in terms of market cap and earnings, it appears that Thomas is being paid well below the average US small-cap CEO.
Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in TLYS, 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:
- Governance: To find out more about TLYS’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 TLYS? 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 firstname.lastname@example.org.