Rob Scott became the CEO of Wesfarmers Limited (ASX:WES) in 2017, 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 Wesfarmers.
Comparing Wesfarmers Limited's CEO Compensation With the industry
According to our data, Wesfarmers Limited has a market capitalization of AU$56b, and paid its CEO total annual compensation worth AU$7.8m over the year to June 2020. Notably, that's an increase of 15% over the year before. While we always look at total compensation first, our analysis shows that the salary component is less, at AU$2.3m.
On comparing similar companies in the industry with market capitalizations above AU$11b, we found that the median total CEO compensation was AU$7.8m. So it looks like Wesfarmers compensates Rob Scott in line with the median for the industry. What's more, Rob Scott holds AU$33m worth of shares in the company in their own name, indicating that they have a lot of skin in the game.
On an industry level, around 52% of total compensation represents salary and 48% is other remuneration. Wesfarmers sets aside a smaller share of compensation for salary, in comparison to the overall industry. If total compensation is slanted towards non-salary benefits, it indicates that CEO pay is linked to company performance.
Wesfarmers Limited's Growth
Over the last three years, Wesfarmers Limited has shrunk its earnings per share by 16% per year. It achieved revenue growth of 10% over the last year.
The decline in EPS is a bit concerning. And while it's good to see some good revenue growth recently, the growth isn't really fast enough for us to put aside my concerns around EPS. So given this relatively weak performance, shareholders would probably not want to see high compensation for the CEO. Looking ahead, you might want to check this free visual report on analyst forecasts for the company's future earnings..
Has Wesfarmers Limited Been A Good Investment?
Most shareholders would probably be pleased with Wesfarmers Limited for providing a total return of 88% 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.
As we touched on above, Wesfarmers Limited is currently paying a compensation that's close to the median pay for CEOs of companies belonging to the same industry and with similar market capitalizations. This doesn't look good when you see that EPS growth over the last three years has been negative. But on the bright side, shareholder returns have moved northward during the same period. We're not saying CEO compensation is too generous, but shrinking EPS is undoubtedly an issue that will have to be addressed.
While it is important to pay attention to CEO remuneration, investors should also consider other elements of the business. That's why we did some digging and identified 1 warning sign for Wesfarmers that you should be aware of before investing.
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. 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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