What Did The RMR Group Inc’s (NASDAQ:RMR) CEO Take Home Last Year?
Adam Portnoy took the helm as The RMR Group Inc’s (NASDAQ:RMR) CEO and grew market cap to US$1.91B recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. Today we will assess Portnoy’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 RMR Group
Did Portnoy create value?
RMR 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, RMR produced a profit of US$89.37M , which is an increase of 104.95% from its prior year’s earnings of US$43.61M. This is a positive indication that RMR has strived to maintain a good track record of profitability in the face of any headwinds. Given earnings are moving the right way, CEO pay should be reflective of Portnoy’s hard work. Over the same period Portnoy’s total compensation dropped by a non-trivial rate of -45.06%, to US$3.46M. Furthermore, Portnoy’s pay is also made up of 2.96% non-cash elements, which means that fluxes in RMR’s share price can move the actual level of what the CEO actually collects at the end of the year.
Is RMR’s CEO overpaid relative to the market?
Though one size does not fit all, as remuneration should account for specific factors of the company and market, we can determine a high-level benchmark to see if RMR is an outlier. This outcome helps investors ask the right question about Portnoy’s incentive alignment. On average, a US small-cap has a value of $1B, generates earnings of $96M, and pays its CEO at roughly $2.7M per year. Taking into account the size of RMR in terms of market cap, as well as its performance, using earnings as a proxy, it seems that Portnoy is paid in-line with other US CEOs of small-caps, on average. This may mean that RMR is appropriately compensating its CEO.
Next Steps:
You can breathe easy knowing that shareholder funds aren’t being used to overpay RMR’s CEO. However, on the flipside, you should ask whether Portnoy is appropriately remunerated on the basis of retention. Its important for shareholders to be active in voting governance decisions, as board members are only representatives of investors’ voices. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
1. Governance: To find out more about RMR’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 RMR? 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 pass 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.
