This article will reflect on the compensation paid to Grant Fenn who has served as CEO of Downer EDI Limited (ASX:DOW) since 2010. This analysis will also evaluate the appropriateness of CEO compensation when taking into account the earnings and shareholder returns of the company.
Comparing Downer EDI Limited's CEO Compensation With the industry
According to our data, Downer EDI Limited has a market capitalization of AU$3.6b, and paid its CEO total annual compensation worth AU$3.1m over the year to June 2020. We note that's a decrease of 35% compared to last year. While we always look at total compensation first, our analysis shows that the salary component is less, at AU$1.5m.
In comparison with other companies in the industry with market capitalizations ranging from AU$2.8b to AU$8.8b, the reported median CEO total compensation was AU$3.8m. From this we gather that Grant Fenn is paid around the median for CEOs in the industry. What's more, Grant Fenn holds AU$10m worth of shares in the company in their own name, indicating that they have a lot of skin in the game.
Speaking on an industry level, nearly 65% of total compensation represents salary, while the remainder of 35% is other remuneration. In Downer EDI's case, non-salary compensation represents a greater slice of total remuneration, in comparison to the broader industry. It's important to note that a slant towards non-salary compensation suggests that total pay is tied to the company's performance.
Downer EDI Limited's Growth
Over the last three years, Downer EDI Limited has shrunk its earnings per share by 20% per year. The trailing twelve months of revenue was pretty much the same as the prior period.
Overall this is not a very positive result for shareholders. And the flat revenue hardly impresses. So given this relatively weak performance, shareholders would probably not want to see high compensation for the CEO. Moving away from current form for a second, it could be important to check this free visual depiction of what analysts expect for the future.
Has Downer EDI Limited Been A Good Investment?
With a three year total loss of 16% for the shareholders, Downer EDI Limited would certainly have some dissatisfied shareholders. This suggests it would be unwise for the company to pay the CEO too generously.
As we touched on above, Downer EDI Limited is currently paying a compensation that's close to the median pay for CEOs of companies belonging to the same industry and with similar market capitalizations. Meanwhile, EPS growth and shareholder returns have been in the red for the last three years. We'd stop short of saying compensation is inappropriate, but we would understand if shareholders had questions regarding a future raise.
It is always advisable to analyse CEO pay, along with performing a thorough analysis of the company's key performance areas. That's why we did our research, and identified 2 warning signs for Downer EDI (of which 1 can't be ignored!) that you should know about in order to have a holistic understanding of the stock.
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.
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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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