Is Graham Corporation’s (NYSE:GHM) CEO Pay Fair?

Jim Lines has been the CEO of Graham Corporation (NYSE:GHM) since 2008. This analysis aims first to contrast CEO compensation with other companies that have similar market capitalization. After that, we will consider the growth in the business. And finally we will reflect on how common stockholders have fared in the last few years, as a secondary measure of performance. This method should give us information to assess how appropriately the company pays the CEO.

Check out our latest analysis for Graham

How Does Jim Lines’s Compensation Compare With Similar Sized Companies?

Our data indicates that Graham Corporation is worth US$133m, and total annual CEO compensation was reported as US$1.2m for the year to March 2019. While we always look at total compensation first, we note that the salary component is less, at US$435k. We further remind readers that the CEO may face performance requirements to receive the non-salary part of the total compensation. We looked at a group of companies with market capitalizations under US$200m, and the median CEO total compensation was US$608k.

Pay mix tells us a lot about how a company functions versus the wider industry, and it’s no different in the case of Graham. On a sector level, around 16% of total compensation represents salary and 84% is other remuneration. According to our research, Graham has allocated a higher percentage of pay to salary in comparison to the broader sector.

It would therefore appear that Graham Corporation pays Jim Lines 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. We can better assess whether the pay is overly generous by looking into the underlying business performance. You can see, below, how CEO compensation at Graham has changed over time.

NYSE:GHM CEO Compensation April 10th 2020
NYSE:GHM CEO Compensation April 10th 2020

Is Graham Corporation Growing?

On average over the last three years, Graham Corporation has shrunk earnings per share by 42% each year (measured with a line of best fit). In the last year, its revenue changed by just 0.9%.

Unfortunately, earnings per share have trended lower over the last three years. And the flat revenue is seriously uninspiring. These factors suggest that the business performance wouldn’t really justify a high pay packet for the CEO. You might want to check this free visual report on analyst forecasts for future earnings.

Has Graham Corporation Been A Good Investment?

With a three year total loss of 33%, Graham Corporation would certainly have some dissatisfied shareholders. It therefore might be upsetting for shareholders if the CEO were paid generously.

In Summary…

We compared total CEO remuneration at Graham Corporation with the amount paid at companies with a similar market capitalization. Our data suggests that it pays above the median CEO pay within that group.

We think many shareholders would be underwhelmed with the business growth over the last three years. Arguably worse, investors are without a positive return for the last three years. This analysis suggests to us that the CEO is paid too generously! CEO compensation is an important area to keep your eyes on, but we’ve also identified 2 warning signs for Graham (1 shouldn’t be ignored!) that you should be aware of before investing here.

Important note: Graham may not be the best stock to buy. You might find something better in this list of interesting companies with high ROE 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.