Does TransAlta Corporation’s (TSE:TA) CEO Pay Reflect Performance?

In 2012 Dawn Farrell was appointed CEO of TransAlta Corporation (TSE:TA). First, this article will compare CEO compensation with compensation at similar sized companies. After that, we will consider the growth in the business. Third, we’ll reflect on the total return to shareholders over three years, as a second measure of business performance. This method should give us information to assess how appropriately the company pays the CEO.

View our latest analysis for TransAlta

How Does Dawn Farrell’s Compensation Compare With Similar Sized Companies?

Our data indicates that TransAlta Corporation is worth CA$3.0b, and total annual CEO compensation was reported as CA$6.2m for the year to December 2018. While we always look at total compensation first, we note that the salary component is less, at CA$1.0m. Importantly, there may be performance hurdles relating to the non-salary component of the total compensation. As part of our analysis we looked at companies in the same jurisdiction, with market capitalizations of CA$1.3b to CA$4.2b. The median total CEO compensation was CA$2.8m.

It would therefore appear that TransAlta Corporation pays Dawn Farrell more than the median CEO remuneration at companies of a similar size, in the same market. However, this fact alone doesn’t mean the remuneration is too high. A closer look at the performance of the underlying business will give us a better idea about whether the pay is particularly generous.

You can see, below, how CEO compensation at TransAlta has changed over time.

TSX:TA CEO Compensation, February 18th 2020
TSX:TA CEO Compensation, February 18th 2020

Is TransAlta Corporation Growing?

Over the last three years TransAlta Corporation has shrunk its earnings per share by an average of 85% per year (measured with a line of best fit). Its revenue is up 4.2% over last year.

Unfortunately, earnings per share have trended lower over the last three years. The modest increase in revenue in the last year isn’t enough to make me overlook the disappointing change in earnings per share. These factors suggest that the business performance wouldn’t really justify a high pay packet for the CEO. It could be important to check this free visual depiction of what analysts expect for the future.

Has TransAlta Corporation Been A Good Investment?

Most shareholders would probably be pleased with TransAlta Corporation for providing a total return of 56% over three years. So they may not be at all concerned if the CEO were to be paid more than is normal for companies around the same size.

In Summary…

We compared total CEO remuneration at TransAlta Corporation with the amount paid at companies with a similar market capitalization. We found that it pays well over the median amount paid in the benchmark group.

We think many shareholders would be underwhelmed with the business growth over the last three years. However, we can’t argue with the strong returns to shareholders, over the same time period. Considering this, shareholders are probably not too worried about the CEO compensation. So you may want to check if insiders are buying TransAlta shares with their own money (free access).

Arguably, business quality is much more important than CEO compensation levels. So check out this free list of interesting companies, that have HIGH return on equity and low debt.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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