We Think The Compensation For Downer EDI Limited's (ASX:DOW) CEO Looks About Right

By
Simply Wall St
Published
October 28, 2021
ASX:DOW
Source: Shutterstock

Performance at Downer EDI Limited (ASX:DOW) has been reasonably good and CEO Grant Fenn has done a decent job of steering the company in the right direction. In light of this performance, CEO compensation will probably not be the main focus for shareholders as they go into the AGM on 04 November 2021. We present our case of why we think CEO compensation looks fair.

Check out our latest analysis for Downer EDI

How Does Total Compensation For Grant Fenn Compare With Other Companies In The Industry?

According to our data, Downer EDI Limited has a market capitalization of AU$4.4b, and paid its CEO total annual compensation worth AU$3.3m over the year to June 2021. That's a fairly small increase of 7.8% over the previous year. We note that the salary of AU$1.72m makes up a sizeable portion of the total compensation received by the CEO.

On examining similar-sized companies in the industry with market capitalizations between AU$2.6b and AU$8.5b, we discovered that the median CEO total compensation of that group was AU$4.0m. From this we gather that Grant Fenn is paid around the median for CEOs in the industry. What's more, Grant Fenn holds AU$13m worth of shares in the company in their own name, indicating that they have a lot of skin in the game.

Component20212020Proportion (2021)
Salary AU$1.7m AU$1.5m 52%
Other AU$1.6m AU$1.6m 48%
Total CompensationAU$3.3m AU$3.1m100%

On an industry level, roughly 57% of total compensation represents salary and 43% is other remuneration. Downer EDI is largely mirroring the industry average when it comes to the share a salary enjoys in overall compensation. If salary dominates total compensation, it suggests that CEO compensation is leaning less towards the variable component, which is usually linked with performance.

ceo-compensation
ASX:DOW CEO Compensation October 28th 2021

A Look at Downer EDI Limited's Growth Numbers

Downer EDI Limited has seen its earnings per share (EPS) increase by 33% a year over the past three years. Its revenue is down 9.0% over the previous year.

Shareholders would be glad to know that the company has improved itself over the last few years. It's always a tough situation when revenues are not growing, but ultimately profits are more important. Looking ahead, you might want to check this free visual report on analyst forecasts for the company's future earnings..

Has Downer EDI Limited Been A Good Investment?

Downer EDI Limited has not done too badly by shareholders, with a total return of 5.8%, over three years. It would be nice to see that metric improve in the future. Accordingly, a proposal to increase CEO remuneration without seeing an improvement in shareholder returns might not be met favorably by most shareholders.

To Conclude...

Given that the company's overall performance has been reasonable, the CEO remuneration policy might not be shareholders' central point of focus in the upcoming AGM. Despite the pleasing results, we still think that any proposed increases to CEO compensation will be examined based on a case by case basis and linked to performance outcomes.

CEO pay is simply one of the many factors that need to be considered while examining business performance. That's why we did our research, and identified 2 warning signs for Downer EDI (of which 1 shouldn't be ignored!) that you should know about in order to have a holistic understanding of the stock.

Switching gears from Downer EDI, if you're hunting for a pristine balance sheet and premium returns, this free list of high return, low debt companies is a great place to look.

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