How Should Investors React To Melrose Industries' (LON:MRO) CEO Pay?

Simply Wall St
November 09, 2020

Simon Peckham became the CEO of Melrose Industries PLC (LON:MRO) in 2012, 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 evaluate the appropriateness of CEO compensation when taking into account the earnings and shareholder returns of the company.

See our latest analysis for Melrose Industries

How Does Total Compensation For Simon Peckham Compare With Other Companies In The Industry?

According to our data, Melrose Industries PLC has a market capitalization of UK£6.2b, and paid its CEO total annual compensation worth UK£976k over the year to December 2019. That's a slight decrease of 7.0% on the prior year. Notably, the salary which is UK£520.0k, represents most of the total compensation being paid.

On examining similar-sized companies in the industry with market capitalizations between UK£3.0b and UK£9.1b, we discovered that the median CEO total compensation of that group was UK£2.2m. That is to say, Simon Peckham is paid under the industry median. What's more, Simon Peckham holds UK£22m worth of shares in the company in their own name, indicating that they have a lot of skin in the game.

Component20192018Proportion (2019)
Salary UK£520k UK£490k 53%
Other UK£456k UK£559k 47%
Total CompensationUK£976k UK£1.0m100%

Talking in terms of the industry, salary represented approximately 77% of total compensation out of all the companies we analyzed, while other remuneration made up 23% of the pie. In Melrose Industries' case, non-salary compensation represents a greater slice of total remuneration, in comparison to the broader industry. If salary dominates total compensation, it suggests that CEO compensation is leaning less towards the variable component, which is usually linked with performance.

LSE:MRO CEO Compensation November 9th 2020

A Look at Melrose Industries PLC's Growth Numbers

Over the last three years, Melrose Industries PLC has shrunk its earnings per share by 3.7% per year. Its revenue is down 13% over the previous year.

Few shareholders would be pleased to read that EPS have declined. And the impression is worse when you consider revenue is down year-on-year. It's hard to argue the company is firing on all cylinders, so shareholders might be averse to high CEO remuneration. Looking ahead, you might want to check this free visual report on analyst forecasts for the company's future earnings..

Has Melrose Industries PLC Been A Good Investment?

Since shareholders would have lost about 38% over three years, some Melrose Industries PLC investors would surely be feeling negative emotions. Therefore, it might be upsetting for shareholders if the CEO were paid generously.

To Conclude...

As we touched on above, Melrose Industries PLC is currently paying its CEO below the median pay for CEOs of companies belonging to the same industry and with similar market capitalizations. While we are quite underwhelmed with EPS growth, the shareholder returns over the past three years have also failed to impress us. We can't say the CEO compensation is high, but shareholders will be cold to a bump at this stage, considering negative investor returns.

CEO compensation can have a massive impact on performance, but it's just one element. That's why we did some digging and identified 1 warning sign for Melrose Industries that investors should think about before committing capital to this stock.

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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