How Should Investors React To Fortescue Metals Group's (ASX:FMG) CEO Pay?

Elizabeth Gaines became the CEO of Fortescue Metals Group Limited (ASX:FMG) in 2018, and we think it's a good time to look at the executive's compensation against the backdrop of overall company performance. This analysis will also look to assess whether the CEO is appropriately paid, considering recent earnings growth and investor returns for Fortescue Metals Group.

See our latest analysis for Fortescue Metals Group

Comparing Fortescue Metals Group Limited's CEO Compensation With the industry

At the time of writing, our data shows that Fortescue Metals Group Limited has a market capitalization of AU$77b, and reported total annual CEO compensation of US$4.2m for the year to June 2020. That's a notable increase of 20% on last year. We think total compensation is more important but our data shows that the CEO salary is lower, at US$1.3m.

In comparison with other companies in the industry with market capitalizations over AU$10b , the reported median total CEO compensation was US$2.7m. Accordingly, our analysis reveals that Fortescue Metals Group Limited pays Elizabeth Gaines north of the industry median. Furthermore, Elizabeth Gaines directly owns AU$24m worth of shares in the company, implying that they are deeply invested in the company's success.

Talking in terms of the industry, salary represented approximately 69% of total compensation out of all the companies we analyzed, while other remuneration made up 31% of the pie. Fortescue Metals Group sets aside a smaller share of compensation for salary, in comparison to the overall industry. If non-salary compensation dominates total pay, it's an indicator that the executive's salary is tied to company performance.

A Look at Fortescue Metals Group Limited's Growth Numbers

Fortescue Metals Group Limited has seen its earnings per share (EPS) increase by 32% a year over the past three years. In the last year, its revenue is up 28%.

Shareholders would be glad to know that the company has improved itself over the last few years. It's great to see that revenue growth is strong, too. These metrics suggest the business is growing strongly. 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 Fortescue Metals Group Limited Been A Good Investment?

Boasting a total shareholder return of 565% over three years, Fortescue Metals Group 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, Elizabeth is compensated more than what is normal for CEOs of companies of similar size, and which belong to the same industry. However, Fortescue Metals Group has produced strong EPS growth and shareholder returns over the last three years. So, in acknowledgment of the overall excellent performance, we believe CEO compensation is appropriate. Given the strong history of shareholder returns, the shareholders are probably very happy with Elizabeth's performance.

We can learn a lot about a company by studying its CEO compensation trends, along with looking at other aspects of the business. We did our research and identified 3 warning signs (and 1 which is a bit unpleasant) in Fortescue Metals Group we think you should know about.

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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