Leading Zion Oil & Gas Inc (NASDAQ:ZN) as the CEO, Victor Carrillo took the company to a valuation of US$232.46M. 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. Today we will assess Carrillo’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 Zion Oil & Gas
Did Carrillo create value?
ZN 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. Over the last year ZN produced negative earnings of -US$11.57M , which is a further decline from prior year’s loss of -US$7.56M. Moreover, on average, ZN has been loss-making in the past, with a 5-year average EPS of -US$0.52. During times of negative earnings, the company may be facing a period of reinvestment and growth, or it can be a sign of some headwind. In any event, CEO compensation should represent the current condition of the business. In the latest financial report, Carrillo’s total compensation increased by 12.35% to US$504.94K. Furthermore, Carrillo’s pay is also made up of non-cash items, which means that variabilities in ZN’s share price can move the real level of what the CEO actually takes home at the end of the day.
Is ZN’s CEO overpaid relative to the market?
Though there is no cookie-cutter approach, since remuneration should be tailored to the specific company and market, we can determine a high-level base line to see if ZN is an outlier. This outcome can help direct shareholders to ask the right question about Carrillo’s incentive alignment. Generally, a US small-cap is worth around $1B, produces earnings of $96M, and remunerates its CEO circa $2.7M annually. Normally I would look at market cap and earnings as a proxy for performance, however, ZN’s negative earnings reduces the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Carrillo is remunerated sensibly relative to peers. Overall, although ZN is loss-making, it seems like the CEO’s pay is reflective of the appropriate level.
Hopefully this article has given you insight on how shareholders should think about ZN’s governance policies such as CEO pay. As an investor, you have the right to understand how the board thinks about management incentives, and also the right to vote for and against substantial CEO pay changes. Governance is a big factor in investing, and I encourage you to dig deeper into those that represent your voice on the board. 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 ZN’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 ZN? 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.