Increases to Telefónica, S.A.'s (BME:TEF) CEO Compensation Might Cool off for now

Key Insights

• Telefónica will host its Annual General Meeting on 12th of April
• CEO Jose Alvarez-Pallete Lopez's total compensation includes salary of €1.92m
• The overall pay is 125% above the industry average
• Telefónica's EPS declined by 58% over the past three years while total shareholder return over the past three years was 27%

Despite Telefónica, S.A.'s (BME:TEF) share price growing positively in the past few years, the per-share earnings growth has not grown to investors' expectations, suggesting that there could be other factors at play driving the share price. The upcoming AGM on 12th of April may be an opportunity for shareholders to bring up any concerns they may have for the board’s attention. One way that shareholders can influence managerial decisions is through voting on CEO and executive remuneration packages, which studies show could impact company performance. From the data that we gathered, we think that shareholders should hold off on a raise on CEO compensation until performance starts to show some improvement.

See our latest analysis for Telefónica

Comparing Telefónica, S.A.'s CEO Compensation With The Industry

Our data indicates that Telefónica, S.A. has a market capitalization of €22b, and total annual CEO compensation was reported as €5.6m for the year to December 2023. That's a slight decrease of 7.8% on the prior year. While this analysis focuses on total compensation, it's worth acknowledging that the salary portion is lower, valued at €1.9m.

For comparison, other companies in the Spain Telecom industry with market capitalizations above €7.4b, reported a median total CEO compensation of €2.5m. This suggests that Jose Alvarez-Pallete Lopez is paid more than the median for the industry. Moreover, Jose Alvarez-Pallete Lopez also holds €9.2m worth of Telefónica stock directly under their own name, which reveals to us that they have a significant personal stake in the company.

Component	2023	2022	Proportion (2023)
Salary	€1.9m	€1.9m	34%
Other	€3.7m	€4.2m	66%
Total Compensation	€5.6m	€6.1m	100%

Speaking on an industry level, nearly 59% of total compensation represents salary, while the remainder of 41% is other remuneration. In Telefónica's case, non-salary compensation represents a greater slice of total remuneration, 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 Telefónica, S.A.'s Growth Numbers

Over the last three years, Telefónica, S.A. has shrunk its earnings per share by 58% per year. Its revenue is up 1.6% over the last year.

Few shareholders would be pleased to read that EPS have declined. The modest increase in revenue in the last year isn't enough to make us overlook the disappointing change in EPS. It's hard to argue the company is firing on all cylinders, so shareholders might be averse to high CEO remuneration. 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 Telefónica, S.A. Been A Good Investment?

With a total shareholder return of 27% over three years, Telefónica, S.A. shareholders would, in general, be reasonably content. But they probably don't want to see the CEO paid more than is normal for companies around the same size.

To Conclude...

Despite the positive returns on shareholders' investments, the fact that earnings have failed to grow makes us skeptical about whether these returns will continue. The upcoming AGM will provide shareholders the opportunity to revisit the company’s remuneration policies and evaluate if the board’s judgement and decision-making is aligned with that of the company’s shareholders.

We can learn a lot about a company by studying its CEO compensation trends, along with looking at other aspects of the business. We identified 2 warning signs for Telefónica (1 is a bit concerning!) that you should be aware of before investing here.

Important note: Telefónica 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.