Willy Walker took the helm as Walker & Dunlop Inc’s (NYSE:WD) CEO and grew market cap to $1.46B 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. I will break down Walker’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 Walker & Dunlop

What has WD’s performance been like?

Earnings is a powerful indication of WD’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Walker’s performance in the past year. Recently, WD delivered an earnings of $149.0M , which is an increase of 52.75% from its previous year’s earnings of $97.5M. This is an encouraging signal that WD aims to sustain a strong track record of generating profits regardless of the challenges. Given earnings are moving the right way, CEO pay should be reflective of Walker’s value creation for shareholders. Over the same period Walker’s total compensation increased by 18.33% to $3,971,506. Moreover, Walker’s pay is also made up of 13.23% non-cash elements, which means that fluctuations in WD’s share price can move the true level of what the CEO actually collects at the end of the year.

Is WD’s CEO overpaid relative to the market?

Even though one size does not fit all, since compensation should be tailored to the specific company and market, we can evaluate a high-level thresold to see if WD deviates substantially from its peers. This exercise can help shareholders ask the right question about Walker’s incentive alignment. Typically, a US small-cap has a value of $1B, produces earnings of $96M, and pays its CEO at roughly $2.7M annually. Taking into account the size of WD in terms of market cap, as well as its performance, using earnings as a proxy, it seems that Walker is compensated similar to the average US small-cap CEO This could mean Walker is paid a suitable level.

Next Steps:

In the upcoming year’s AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose an executive pay raise. Will this raise take Walker’s pay beyond the bound of reasonableness, or will it help in retaining the talented executive? Being proactive in governance decisions is a key part to investing, and collectively, investors can make a big difference. If you have not done so already, I urge you to complete your research by taking a look at the following:

• 1. Governance: To find out more about WOW’s governance, look through our infographic report of the company’s board and management.

• 2. 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.

• 3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of WD? 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.