Leading Tengasco Inc (AMEX:TGC) as the CEO, Mike Rugen took the company to a valuation of US$7.41M. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. I will break down Rugen’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 Tengasco
What has TGC’s performance been like?
Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Over the last year TGC delivered negative earnings of -US$271.00K . But this is an improvement on prior year’s loss of -US$2.96M, which may signal a turnaround since TGC has been loss-making for the past five years, on average, with an EPS of -US$0.45. Given earnings are moving the right way, CEO pay should be reflective of Rugen’s value creation for shareholders. During this period Rugen’s total compensation fell by a marginal -0.13%, to US$198.96K. Although I couldn’t find information on the breakdown of Rugen’s pay, if some portion were non-cash items such as stocks and options, then fluxes in TGC’s share price can move the real level of what the CEO actually takes home at the end of the day.
What’s a reasonable CEO compensation?
Even though there is no cookie-cutter approach, since remuneration should account for specific factors of the company and market, we can fashion a high-level thresold to see if TGC is an outlier. This exercise can help shareholders ask the right question about Rugen’s incentive alignment. Typically, a US small-cap is worth around $1B, produces earnings of $96M, and remunerates its CEO at roughly $2.7M per annum. Typically I’d use market cap and profit as factors determining performance, however, TGC’s negative earnings lower the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Rugen is being paid within the bounds of reasonableness. Putting everything together, though TGC is loss-making, it seems like the CEO’s pay is sound.
My conclusion is that Rugen is not being overpaid. But your role as a shareholder should not end here. As above, this is a relatively simplistic calculation using high-level benchmarket. Proactive shareholders should question their representatives (i.e. the board of directors) how they think about the CEO’s incentive alignment with shareholders and how they balance this with retention and reward. 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 TGC’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 TGC? 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.