How Should Investors Feel About Australian Foundation Investment's (ASX:AFI) CEO Remuneration?

Robert Freeman has been the CEO of Australian Foundation Investment Company Limited (ASX:AFI) since 2018, and this article will examine the executive's compensation with respect to the overall performance of the company. This analysis will also look to assess whether the CEO is appropriately paid, considering recent earnings growth and investor returns for Australian Foundation Investment.

See our latest analysis for Australian Foundation Investment

Comparing Australian Foundation Investment Company Limited's CEO Compensation With the industry

At the time of writing, our data shows that Australian Foundation Investment Company Limited has a market capitalization of AU$8.7b, and reported total annual CEO compensation of AU$1.1m for the year to June 2020. That is, the compensation was roughly the same as last year. We note that the salary portion, which stands at AU$842.0k constitutes the majority of total compensation received by the CEO.

For comparison, other companies in the same industry with market capitalizations ranging between AU$5.2b and AU$16b had a median total CEO compensation of AU$1.5m. This suggests that Australian Foundation Investment remunerates its CEO largely in line with the industry average. What's more, Robert Freeman holds AU$1.1m worth of shares in the company in their own name.

On an industry level, roughly 70% of total compensation represents salary and 30% is other remuneration. There isn't a significant difference between Australian Foundation Investment and the broader market, in terms of salary allocation in the overall compensation package. If salary is the major component in total compensation, it suggests that the CEO receives a higher fixed proportion of the total compensation, regardless of performance.

Australian Foundation Investment Company Limited's Growth

Over the last three years, Australian Foundation Investment Company Limited has shrunk its earnings per share by 13% per year. In the last year, its revenue is down 42%.

Few shareholders would be pleased to read that EPS have declined. This is compounded by the fact revenue is actually down on last year. So given this relatively weak performance, shareholders would probably not want to see high compensation for the CEO. Although we don't have analyst forecasts, you might want to assess this data-rich visualization of earnings, revenue and cash flow.

Has Australian Foundation Investment Company Limited Been A Good Investment?

Boasting a total shareholder return of 33% over three years, Australian Foundation Investment Company Limited has done well by shareholders. 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.

To Conclude...

As previously discussed, Robert is compensated close to the median for companies of its size, and which belong to the same industry. Some investors may take issue with this, especially considering shrinking EPS for the past three years. On the other hand, shareholder returns are showing positive trends over the same time frame. We wouldn't say CEO compensation is too high, but shrinking EPS is undoubtedly an issue that will have to be addressed.

While CEO pay is an important factor to be aware of, there are other areas that investors should be mindful of as well. We've identified 1 warning sign for Australian Foundation Investment that investors should be aware of in a dynamic business environment.

Switching gears from Australian Foundation Investment, 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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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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