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Leading Kingold Jewelry Inc (NASDAQ:KGJI) as the CEO, Zhihong Jia took the company to a valuation of US$117.68M. 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 Jia’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 Kingold Jewelry
What has KGJI’s performance been like?
Earnings is a powerful indication of KGJI’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Jia’s performance in the past year. Most recently, KGJI released a profit of US$57.67M , which is an increase of 1.90% from its previous year’s earnings of US$56.60M. This is an encouraging signal that KGJI aims to sustain a strong track record of generating profits regardless of the challenges. Given earnings are moving the right way, CEO pay should mirror Jia’s value creation for shareholders. In the same year, Jia’s total remuneration remained stable at US$175.00K since the previous year. Furthermore, Jia’s pay is also comprised of non-cash elements, which means that variabilities in KGJI’s share price can impact the actual level of what the CEO actually collects at the end of the year.
Is KGJI’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 evaluate a high-level base line to see if KGJI is an outlier. This exercise can help direct shareholders to ask the right question about Jia’s incentive alignment. Normally, a US small-cap is worth around $1B, generates earnings of $96M, and remunerates its CEO at roughly $2.7M annually. Accounting for the size of KGJI in terms of market cap, as well as its performance, using earnings as a proxy, it seems that Jia is paid less than other US CEOs of small-caps, on average.
Next Steps:
You can breathe easy knowing that shareholder funds aren’t being used to overpay KGJI’s CEO. However, on the flipside, you should ask whether Jia 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: