How Should Investors React To Graham Holdings Company’s (NYSE:GHC) CEO Pay?

Tim O’Shaughnessy has been the CEO of Graham Holdings Company (NYSE:GHC) since 2015. This report will, first, examine the CEO compensation levels in comparison to CEO compensation at companies of similar size. Then we’ll look at a snap shot of the business growth. And finally – as a second measure of performance – we will look at the returns shareholders have received over the last few years. This method should give us information to assess how appropriately the company pays the CEO.

View our latest analysis for Graham Holdings

How Does Tim O’Shaughnessy’s Compensation Compare With Similar Sized Companies?

According to our data, Graham Holdings Company has a market capitalization of US$2.5b, and paid its CEO total annual compensation worth US$3.0m over the year to December 2018. While we always look at total compensation first, we note that the salary component is less, at US$750k. We note that more than half of the total compensation is not the salary; and performance requirements may apply to this non-salary portion. When we examined a selection of companies with market caps ranging from US$2.0b to US$6.4b, we found the median CEO total compensation was US$5.1m.

This would give shareholders a good impression of the company, since most similar size companies have to pay more, leaving less for shareholders. While this is a good thing, you’ll need to understand the business better before you can form an opinion.

You can see a visual representation of the CEO compensation at Graham Holdings, below.

NYSE:GHC CEO Compensation, March 11th 2020
NYSE:GHC CEO Compensation, March 11th 2020

Is Graham Holdings Company Growing?

On average over the last three years, Graham Holdings Company has grown earnings per share (EPS) by 25% each year (using a line of best fit). Its revenue is up 8.8% over last year.

This demonstrates that the company has been improving recently. A good result. It’s nice to see a little revenue growth, as this is consistent with healthy business conditions. Although we don’t have analyst forecasts you might want to assess this data-rich visualization of earnings, revenue and cash flow.

Has Graham Holdings Company Been A Good Investment?

Given the total loss of 16% over three years, many shareholders in Graham Holdings Company are probably rather dissatisfied, to say the least. This suggests it would be unwise for the company to pay the CEO too generously.

In Summary…

It looks like Graham Holdings Company pays its CEO less than similar sized companies.

Considering the underlying business is growing earnings, this would suggest the pay is modest. Despite some positives, it is likely that shareholders wanted better returns, given the performance over the last three years. So while we don’t think, Tim O’Shaughnessy is paid too much, shareholders may hope that business performance translates to investment returns before pay rises are given out. When I see fairly low remuneration, combined with earnings per share growth, but without big share price gains, it makes me want to research the potential for future gains. Moving away from CEO compensation for the moment, we’ve identified 2 warning signs for Graham Holdings that you should be aware of before investing.

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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