How Should Investors Feel About Sogou Inc’s (NYSE:SOGO) CEO Pay?
Xiaochuan Wang took the reins as CEO of Sogou Inc’s (NYSE:SOGO) and grew market cap to $5.47B recently. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. Today we will assess Wang’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 Sogou
What has SOGO’s performance been like?
Earnings is a powerful indication of SOGO’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Wang’s performance in the past year. Recently, SOGO delivered a profit of $49.4M , which is an increase of 165.23% from its previous year’s earnings of $18.6M. This is a positive indication that SOGO 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 echo Wang’s valued-adding activities. During the same period, Wang’s total compensation declined by -14.31%, to $0. Furthermore, Wang’s pay is also made up of non-cash elements, which means that fluxes in SOGO’s share price can move the true level of what the CEO actually collects at the end of the year.
Is SOGO’s CEO overpaid relative to the market?
While no standard benchmark exists, since compensation should be tailored to the specific company and market, we can fashion a high-level yardstick to see if SOGO deviates substantially from its peers. This outcome helps investors ask the right question about Wang’s incentive alignment. Generally, a US mid-cap is worth around $5B, creates earnings of $290M and remunerates its CEO circa $5.3M annually. Taking into account the size of SOGO in terms of market cap, as well as its performance, using earnings as a proxy, it seems that Wang is paid lower than other similar US CEOs in the mid-cap industry.
What this means for you:
Are you a shareholder? You can breathe easy knowing that shareholder funds aren’t being used to overpay SOGO’s CEO. However, on the flipside, you should ask whether Wang 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. To find out more about SOGO’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? In order to determine whether or not you should invest in SOGO, your thesis should be built on fundamentals. Even though CEO pay isn’t technically a key concern, it could serve as an indication as to how board members align incentives and how they think about setting policies. These issues directly impacts how SOGO makes money, and factors impacting your return on investment. To research more about these fundamentals, I recommend you check out our simple infographic report on SOGO’s financial metrics.
PS. If you are not interested in Sogou 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.
