We Think Shareholders May Want To Consider A Review Of Covestro AG's (ETR:1COV) CEO Compensation Package

The results at Covestro AG (ETR:1COV) have been quite disappointing recently and CEO Markus Steilemann bears some responsibility for this. Shareholders will be interested in what the board will have to say about turning performance around at the next AGM on 16 April 2021. It would also be an opportunity for shareholders to influence management through voting on company resolutions such as executive remuneration, which could impact the firm significantly. We present the case why we think CEO compensation is out of sync with company performance.

See our latest analysis for Covestro

Comparing Covestro AG's CEO Compensation With the industry

At the time of writing, our data shows that Covestro AG has a market capitalization of €11b, and reported total annual CEO compensation of €4.4m for the year to December 2020. That's a fairly small increase of 3.1% over the previous year. While we always look at total compensation first, our analysis shows that the salary component is less, at €1.2m.

In comparison with other companies in the industry with market capitalizations over €6.7b , the reported median total CEO compensation was €3.7m. This suggests that Covestro remunerates its CEO largely in line with the industry average. What's more, Markus Steilemann holds €1.3m worth of shares in the company in their own name.

Component	2020	2019	Proportion (2020)
Salary	€1.2m	€1.2m	27%
Other	€3.2m	€3.1m	73%
Total Compensation	€4.4m	€4.3m	100%

Speaking on an industry level, nearly 28% of total compensation represents salary, while the remainder of 72% is other remuneration. Our data reveals that Covestro allocates salary more or less in line with the wider market. If total compensation is slanted towards non-salary benefits, it indicates that CEO pay is linked to company performance.

A Look at Covestro AG's Growth Numbers

Over the last three years, Covestro AG has shrunk its earnings per share by 37% per year. Its revenue is down 14% over the previous year.

The decline in EPS is a bit concerning. And the impression is worse when you consider revenue is down year-on-year. So given this relatively weak performance, shareholders would probably not want to see high compensation for the CEO. 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 Covestro AG Been A Good Investment?

Since shareholders would have lost about 23% over three years, some Covestro AG investors would surely be feeling negative emotions. So shareholders would probably want the company to be less generous with CEO compensation.

In Summary...

Along with the business performing poorly, shareholders have suffered with poor share price returns on their investments, suggesting that there's little to no chance of them being in favor of a CEO pay raise. At the upcoming AGM, the board will get the chance to explain the steps it plans to take to improve business performance.

CEO compensation can have a massive impact on performance, but it's just one element. That's why we did some digging and identified 2 warning signs for Covestro that you should be aware of before investing.

Arguably, business quality is much more important than CEO compensation levels. So check out this free list of interesting companies that have HIGH return on equity 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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