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 evaluate the appropriateness of CEO compensation when taking into account the earnings and shareholder returns of the company.
Check out our latest analysis for Australian Foundation Investment
Comparing Australian Foundation Investment Company Limited's CEO Compensation With the industry
Our data indicates that Australian Foundation Investment Company Limited has a market capitalization of AU$8.7b, and total annual CEO compensation was reported as AU$1.1m for the year to June 2020. That's mostly flat as compared to the prior year's compensation. 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$5.5b and AU$16b had a median total CEO compensation of AU$2.3m. In other words, Australian Foundation Investment pays its CEO lower than the industry median. Moreover, Robert Freeman also holds AU$1.1m worth of Australian Foundation Investment stock directly under their own name.
| Component | 2020 | 2019 | Proportion (2020) |
| Salary | AU$842k | AU$825k | 75% |
| Other | AU$274k | AU$274k | 25% |
| Total Compensation | AU$1.1m | AU$1.1m | 100% |
On an industry level, around 69% of total compensation represents salary and 31% is other remuneration. Our data reveals that Australian Foundation Investment allocates salary more or less in line with the wider market. If total compensation veers towards salary, it suggests that the variable portion - which is generally tied to performance, is lower.
Australian Foundation Investment Company Limited's Growth
Over the last three years, Australian Foundation Investment Company Limited has shrunk its earnings per share by 2.3% per year. In the last year, its revenue is down 40%.
Its a bit disappointing to see that the company has failed to grow its EPS. And the fact that revenue is down year on year arguably paints an ugly picture. So given this relatively weak performance, shareholders would probably not want to see high compensation for the CEO. We don't have analyst forecasts, but you could get a better understanding of its growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
Has Australian Foundation Investment Company Limited Been A Good Investment?
Most shareholders would probably be pleased with Australian Foundation Investment Company Limited for providing a total return of 37% over three years. 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...
As previously discussed, Robert is compensated less than what is normal for CEOs of companies of similar size, and which belong to the same industry. And while EPS growth is in the red, shareholder returns have been great over the last three years, so that's certainly a bright spot! So, while it would be nice to have better EPS growth, our analysis suggests CEO compensation is quite modest.
While CEO pay is an important factor to be aware of, there are other areas that investors should be mindful of as well. That's why we did some digging and identified 1 warning sign for Australian Foundation Investment that you should be aware of before investing.
Of course, you might find a fantastic investment by looking at a different set of stocks. So take a peek at this free list of interesting companies.
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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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About ASX:AFI
Adequate balance sheet second-rate dividend payer.
