Does Sears Hometown and Outlet Stores Inc’s (SHOS) CEO Pay Compared Well With Peers?
Will Powell took the helm as Sears Hometown and Outlet Stores Inc’s (NASDAQ:SHOS) CEO and grew market cap to USD$38.59M 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. I will break down Powell’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. Check out our latest analysis for Sears Hometown and Outlet Stores
Did Powell create value?
SHOS 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, SHOS produced negative earnings of -$189.9M , which is a further decline from prior year’s loss of -$21.2M. Additionally, on average, SHOS has been loss-making in the past, with a 5-year average EPS of -$1.53. In the situation of unprofitability the company may be facing a period of reinvestment and growth, or it can be an indication of some headwind. In any event, CEO compensation should represent the current condition of the business. From the latest report, Powell’s total remuneration rose by 27.57% to $829,804. Furthermore, Powell’s pay is also made up of 13.63% non-cash elements, which means that fluxes in SHOS’s share price can impact the true level of what the CEO actually receives.
Is SHOS’s CEO overpaid relative to the market?
Despite the fact that there is no cookie-cutter approach, since remuneration should account for specific factors of the company and market, we can determine a high-level benchmark to see if SHOS deviates substantially from its peers. This outcome can help direct shareholders to ask the right question about Powell’s incentive alignment. On average, a US small-cap is worth around $1B, creates earnings of $96M, and remunerates its CEO at roughly $2.7M annually. Typically I would use earnings and market cap to account for variations in performance, however, SHOS’s negative earnings lower the effectiveness of this method. Given the range of pay for small-cap executives, it seems like Powell is being paid within the bounds of reasonableness. On the whole, though SHOS is unprofitable, it seems like the CEO’s pay is fair.
What this means for you:
Are you a shareholder? CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Is Powell remunerated appropriately based on other factors we have not covered today? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours. To find out more about SHOS’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? Whether Powell is over or underpaid should not be a deciding factor whether or not you invest in SHOS. However, the way the company is governed and policies, such as remuneration, are structured, are important considerations for an investor. The best place to start is to understand how well SHOS is placed financially. To research more about these fundamentals, I recommend you check out our simple infographic report on SHOS’s financial metrics.
PS. If you are not interested in Sears Hometown and Outlet Stores anymore, you can use our free platform to see my list of over 50 sustainable companies producing great returns.
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.
