Matthew Messinger took the helm as Trinity Place Holdings Inc’s (AMEX:TPHS) CEO and grew market cap to $213.87M recently. 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. Today we will assess Messinger’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. See our latest analysis for Trinity Place Holdings
Did Messinger create value?
Earnings is a powerful indication of TPHS’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Messinger’s performance in the past year. Recently, TPHS released negative earnings of -$6.6M . However, this is an improvement on prior year’s loss of -$7.5M, which may signal a turnaround since TPHS has been loss-making for the past five years, on average, with an EPS of -$0.91. As profits are moving up and up, CEO pay should mirror Messinger’s hard work. In the same year, Messinger’s total remuneration increased over two-fold, reaching $8,622,067 .
Is TPHS’s CEO overpaid relative to the market?
While one size does not fit all, as compensation should be tailored to the specific company and market, we can determine a high-level yardstick to see if TPHS is an outlier. This outcome helps investors ask the right question about Messinger’s incentive alignment. On average, a US small-cap has a value of $1B, creates earnings of $96M, and remunerates its CEO at roughly $2.7M per year. Typically I would look at market cap and earnings as a proxy for performance, however, TPHS’s negative earnings lower the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Messinger’s pay exceeds its peer group.
What this means for you:
Are you a shareholder? TPHS may be paying its CEO above-market rates due to many reasons – retention, reward, or inflated non-cash components of total pay. However, shareholders also should be aware of what the appropriate level is. Boards should be transparent with how they structure CEO pay given that there should be nothing to hide in public companies. Hopefully this analysis has given you the basis for questioning the next CEO pay raise. To find out more about TPHS’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in TPHS, 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. To research more about these fundamentals, I recommend you check out our simple infographic report on TPHS’s financial metrics.
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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.