Is Merck & Co., Inc.'s (NYSE:MRK) CEO Pay Justified?

Ken Frazier became the CEO of Merck & Co., Inc. (NYSE:MRK) in 2011. This analysis aims first to contrast CEO compensation with other large companies. Next, we'll consider growth that the business demonstrates. And finally - as a second measure of performance - we will look at the returns shareholders have received over the last few years. The aim of all this is to consider the appropriateness of CEO pay levels.

Check out our latest analysis for Merck

How Does Ken Frazier's Compensation Compare With Similar Sized Companies?

At the time of writing, our data says that Merck & Co., Inc. has a market cap of US$197b, and reported total annual CEO compensation of US$28m for the year to December 2019. We note that's an increase of 32% above last year. While this analysis focuses on total compensation, it's worth noting the salary is lower, valued at US$1.7m. Importantly, there may be performance hurdles relating to the non-salary component of the total compensation. When we examined a group of companies with market caps over US$8.0b, we found that their median CEO total compensation was US$12m. There aren't very many mega-cap companies, so we had to take a wide range to get a meaningful comparison figure.

Now let's take a look at the pay mix on an industry and company level to gain a better understanding of where Merck stands. On an industry level, roughly 24% of total compensation represents salary and 76% is other remuneration. Non-salary compensation represents a greater slice of the remuneration pie for Merck, in sharp contrast to the overall sector.

It would therefore appear that Merck & Co., Inc. pays Ken Frazier more than the median CEO remuneration at large companies, 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. The graphic below shows how CEO compensation at Merck has changed from year to year.

Is Merck & Co., Inc. Growing?

Over the last three years Merck & Co., Inc. has seen earnings per share (EPS) move in a positive direction by an average of 50% per year (using a line of best fit). In the last year, its revenue is up 12%.

This shows that the company has improved itself over the last few years. Good news for shareholders. It's a real positive to see this sort of growth in a single year. That suggests a healthy and growing business. It could be important to check this free visual depiction of what analysts expect for the future.

Has Merck & Co., Inc. Been A Good Investment?

I think that the total shareholder return of 33%, over three years, would leave most Merck & Co., Inc. shareholders smiling. 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 examined the amount Merck & Co., Inc. pays its CEO, and compared it to the amount paid by other large companies. Our data suggests that it pays above the median CEO pay within that group.

However, the earnings per share growth over three years is certainly impressive. On top of that, in the same period, returns to shareholders have been great. So, considering this good performance, the CEO compensation may be quite appropriate. On another note, we've spotted 1 warning sign for Merck that investors should look into moving forward.

Important note: Merck 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.

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