In 2012 Chip Paucek was appointed CEO of 2U, Inc. (NASDAQ:TWOU). This analysis aims first to contrast CEO compensation with other companies that have similar market capitalization. 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. This process should give us an idea about how appropriately the CEO is paid.
How Does Chip Paucek’s Compensation Compare With Similar Sized Companies?
At the time of writing, our data says that 2U, Inc. has a market cap of US$1.4b, and reported total annual CEO compensation of US$17m for the year to December 2018. We think total compensation is more important but we note that the CEO salary is lower, at US$541k. Importantly, there may be performance hurdles relating to the non-salary component of the total compensation. We examined companies with market caps from US$1.0b to US$3.2b, and discovered that the median CEO total compensation of that group was US$3.9m.
Thus we can conclude that Chip Paucek receives more in total compensation than the median of a group of companies in the same market, and of similar size to 2U, Inc.. However, this doesn’t necessarily mean the pay 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 a visual representation of the CEO compensation at 2U, below.
Is 2U, Inc. Growing?
Over the last three years 2U, Inc. has shrunk its earnings per share by an average of 53% per year (measured with a line of best fit). Its revenue is up 37% over last year.
As investors, we are a bit wary of companies that have lower earnings per share, over three years. But in contrast the revenue growth is strong, suggesting future potential for earnings growth. It’s hard to reach a conclusion about business performance right now. This may be one to watch. Shareholders might be interested in this free visualization of analyst forecasts.
Has 2U, Inc. Been A Good Investment?
Since shareholders would have lost about 36% over three years, some 2U, Inc. shareholders would surely be feeling negative emotions. This suggests it would be unwise for the company to pay the CEO too generously.
We examined the amount 2U, Inc. pays its CEO, and compared it to the amount paid by similar sized companies. As discussed above, we discovered that the company pays more than the median of that group.
The growth in the business has been uninspiring, but the shareholder returns have arguably been worse, over the last three years. Although we’d stop short of calling it inappropriate, we think the CEO compensation is probably more on the generous side of things. Whatever your view on compensation, you might want to check if insiders are buying or selling 2U shares (free trial).
If you want to buy a stock that is better than 2U, this free list of high return, low debt companies is a great place to look.
If you spot an error that warrants correction, please contact the editor at email@example.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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