Should You Worry About Monotype Imaging Holdings Inc’s (NASDAQ:TYPE) CEO Pay?
Scott Landers took the reins as CEO of Monotype Imaging Holdings Inc’s (NASDAQ:TYPE) and grew market cap to US$846.95m 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 Landers’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 Monotype Imaging Holdings
What has TYPE’s performance been like?
Profitability of a company is a strong indication of TYPE’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Landers’s performance. Most recently, TYPE delivered a profit of US$11.68m , which is an increase of 910.55% from its prior year’s earnings of US$1.16m. This is an encouraging signal that TYPE aims to sustain a strong track record of generating profits regardless of the challenges. Since earnings are heading towards the right direction, CEO pay should echo Landers’s value creation for shareholders. Over the same period Landers’s total compensation increased by 43.02% to US$4.90m. Furthermore, Landers’s pay is also made up of 79.58% non-cash elements, which means that fluxes in TYPE’s share price can affect the true level of what the CEO actually collects at the end of the year.
Is TYPE’s CEO overpaid relative to the market?
Though there is no cookie-cutter approach, as compensation should be tailored to the specific company and market, we can gauge a high-level base line to see if TYPE deviates substantially from its peers. This outcome can help direct shareholders to ask the right question about Landers’s incentive alignment. Normally, a US small-cap is worth around $1B, creates earnings of $96M, and pays its CEO circa $2.7M per annum. Allowing for TYPE’s size and performance, in terms of market cap and earnings, it seems that Landers is compensated higher than other US CEOs of small-caps, on average. Even though this is merely a rudimentary calculation, investors should be cognizant of this expense.
What this means for you:
TYPE 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. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
Governance: To find out more about TYPE’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 TYPE? 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
