Should Shareholders Reconsider Cochlear Limited's (ASX:COH) CEO Compensation Package?

The results at Cochlear Limited (ASX:COH) have been quite disappointing recently and CEO Dig Howitt bears some responsibility for this. At the upcoming AGM on 17 October 2022, shareholders can hear from the board including their plans for turning around performance. They will also get a chance to influence managerial decision-making through voting on resolutions such as executive remuneration, which may impact firm value in the future. We present the case why we think CEO compensation is out of sync with company performance.

View our latest analysis for Cochlear

Comparing Cochlear Limited's CEO Compensation With The Industry

At the time of writing, our data shows that Cochlear Limited has a market capitalization of AU$13b, and reported total annual CEO compensation of AU$5.0m for the year to June 2022. That is, the compensation was roughly the same as last year. We think total compensation is more important but our data shows that the CEO salary is lower, at AU$1.9m.

On comparing similar companies from the same industry with market caps ranging from AU$6.4b to AU$19b, we found that the median CEO total compensation was AU$3.3m. Hence, we can conclude that Dig Howitt is remunerated higher than the industry median. Furthermore, Dig Howitt directly owns AU$9.5m worth of shares in the company, implying that they are deeply invested in the company's success.

Component	2022	2021	Proportion (2022)
Salary	AU$1.9m	AU$1.8m	39%
Other	AU$3.0m	AU$3.0m	61%
Total Compensation	AU$5.0m	AU$4.9m	100%

On an industry level, around 59% of total compensation represents salary and 41% is other remuneration. It's interesting to note that Cochlear allocates a smaller portion of compensation to salary in comparison to the broader industry. If total compensation is slanted towards non-salary benefits, it indicates that CEO pay is linked to company performance.

A Look at Cochlear Limited's Growth Numbers

Cochlear Limited has reduced its earnings per share by 2.9% a year over the last three years. Its revenue is up 10% over the last year.

A lack of EPS improvement is not good to see. There's no doubt that the silver lining is that revenue is up. But it isn't sufficiently fast growth to overlook the fact that EPS has gone backwards over three years. It's hard to argue the company is firing on all cylinders, so shareholders might be averse to high CEO remuneration. Looking ahead, you might want to check this free visual report on analyst forecasts for the company's future earnings..

Has Cochlear Limited Been A Good Investment?

Since shareholders would have lost about 6.1% over three years, some Cochlear Limited investors would surely be feeling negative emotions. Therefore, it might be upsetting for shareholders if the CEO were paid generously.

In Summary...

Given that shareholders haven't seen any positive returns on their investment, not to mention the lack of earnings growth, this may suggest that few of them would be willing to award the CEO with a pay rise. At the upcoming AGM, the board will get the chance to explain the steps it plans to take to improve business performance.

Shareholders may want to check for free if Cochlear insiders are buying or selling shares.

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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.