Yahoo Finance Is Zion Oil & Gas Inc’s (NASDAQ:ZN) CEO Overpaid Relative To Its Peers?
Leading Zion Oil & Gas Inc (NASDAQ:ZN) as the CEO, Victor Carrillo took the company to a valuation of US$210.04M. 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 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. Check out our latest analysis for Zion Oil & Gas
What has ZN’s performance been like?
Earnings is a powerful indication of ZN’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Carrillo’s performance in the past year. In the past year, ZN produced negative earnings of -US$12.86M , which is a further decline from prior year’s loss of -US$10.34M. Furthermore, on average, ZN has been loss-making in the past, with a 5-year average EPS of -US$0.47. In the situation of negative earnings, the company may be facing a period of reinvestment and growth, or it can be an indication of some headwind. Regardless, CEO compensation should mirror the current condition of the business. In the most recent report, Carrillo’s total remuneration fell by -11.17%, to US$448.54K. Furthermore, Carrillo’s pay is also made up of non-cash items, which means that variabilities in ZN’s share price can move the actual level of what the CEO actually receives.
What’s a reasonable CEO compensation?
While one size does not fit all, as compensation should account for specific factors of the company and market, we can evaluate a high-level benchmark to see if ZN is an outlier. This outcome can help direct shareholders to ask the right question about Carrillo’s incentive alignment. On average, a US small-cap is worth around $1B, creates earnings of $96M, and remunerates its CEO at roughly $2.7M annually. Usually I would use earnings and market cap to account for variations in performance, however, ZN’s negative earnings reduces the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Carrillo is being paid within the bounds of reasonableness. On the whole, although ZN is unprofitable, it seems like the CEO’s pay is appropriate.
Next Steps:
You can breathe easy knowing that shareholder funds aren’t being used to overpay ZN’s CEO. However, on the flipside, you should ask whether Carrillo 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. 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.
