We Discuss Why Wesfarmers Limited's (ASX:WES) CEO May Deserve A Higher Pay Packet

Shareholders will be pleased by the robust performance of Wesfarmers Limited (ASX:WES) recently and this will be kept in mind in the upcoming AGM on 27 October 2022. They will probably be more interested in hearing the board discuss future initiatives to further improve the business as they vote on resolutions such as executive remuneration. Here is our take on why we think CEO compensation is fair and may even warrant a raise.

Our analysis indicates that WES is potentially overvalued!

How Does Total Compensation For Rob Scott Compare With Other Companies In The Industry?

According to our data, Wesfarmers Limited has a market capitalization of AU$51b, and paid its CEO total annual compensation worth AU$8.0m over the year to June 2022. That's a notable increase of 15% on last year. We think total compensation is more important but our data shows that the CEO salary is lower, at AU$2.3m.

On comparing similar companies in the industry with market capitalizations above AU$13b, we found that the median total CEO compensation was AU$21m. In other words, Wesfarmers pays its CEO lower than the industry median. What's more, Rob Scott holds AU$26m worth of shares in the company in their own name, indicating that they have a lot of skin in the game.

Component	2022	2021	Proportion (2022)
Salary	AU$2.3m	AU$2.3m	28%
Other	AU$5.7m	AU$4.6m	72%
Total Compensation	AU$8.0m	AU$6.9m	100%

On an industry level, roughly 34% of total compensation represents salary and 66% is other remuneration. Wesfarmers sets aside a smaller share of compensation for salary, in comparison to the overall industry. It's important to note that a slant towards non-salary compensation suggests that total pay is tied to the company's performance.

A Look at Wesfarmers Limited's Growth Numbers

Wesfarmers Limited's earnings per share (EPS) grew 6.5% per year over the last three years. In the last year, its revenue is up 8.5%.

We'd prefer higher revenue growth, but it is good to see modest EPS growth. It's clear the performance has been quite decent, but it it falls short of outstanding,based on this information. Historical performance can sometimes be a good indicator on what's coming up next but if you want to peer into the company's future you might be interested in this free visualization of analyst forecasts.

Has Wesfarmers Limited Been A Good Investment?

Wesfarmers Limited has generated a total shareholder return of 27% over three years, so most shareholders would be reasonably content. But they probably don't want to see the CEO paid more than is normal for companies around the same size.

In Summary...

While the company seems to be headed in the right direction performance-wise, there's always room for improvement. If it continues on the same road, shareholders might feel even more confident about their investment, and have little to no objections concerning CEO pay. In fact, strategic decisions that could impact the future of the business might be a far more interesting topic for investors as it would help them set their longer-term expectations.

CEO compensation is a crucial aspect to keep your eyes on but investors also need to keep their eyes open for other issues related to business performance. We've identified 2 warning signs for Wesfarmers that investors should be aware of in a dynamic business environment.

Important note: Wesfarmers is an exciting stock, but we understand investors may be looking for an unencumbered balance sheet and blockbuster returns. You might find something better in this list of interesting companies with high ROE and low debt.

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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.