This article will reflect on the compensation paid to Andy Smith who has served as CEO of Smiths Group plc (LON:SMIN) since 2015. This analysis will also assess whether Smiths Group pays its CEO appropriately, considering recent earnings growth and total shareholder returns.
See our latest analysis for Smiths Group
Comparing Smiths Group plc's CEO Compensation With the industry
According to our data, Smiths Group plc has a market capitalization of UK£6.0b, and paid its CEO total annual compensation worth UK£2.2m over the year to July 2020. That's a notable decrease of 47% on last year. We think total compensation is more important but our data shows that the CEO salary is lower, at UK£840k.
For comparison, other companies in the same industry with market capitalizations ranging between UK£2.9b and UK£8.8b had a median total CEO compensation of UK£2.3m. From this we gather that Andy Smith is paid around the median for CEOs in the industry. What's more, Andy Smith holds UK£5.2m worth of shares in the company in their own name, indicating that they have a lot of skin in the game.
| Component | 2020 | 2019 | Proportion (2020) |
| Salary | UK£840k | UK£820k | 38% |
| Other | UK£1.4m | UK£3.3m | 62% |
| Total Compensation | UK£2.2m | UK£4.1m | 100% |
On an industry level, roughly 53% of total compensation represents salary and 47% is other remuneration. It's interesting to note that Smiths Group allocates a smaller portion of compensation to salary in comparison to the broader industry. It's important to note that a slant towards non-salary compensation suggests that total pay is tied to the company's performance.
Smiths Group plc's Growth
Over the last three years, Smiths Group plc has shrunk its earnings per share by 52% per year. It achieved revenue growth of 2.0% over the last year.
The decline in EPS is a bit concerning. And the modest revenue growth over 12 months isn't much comfort against the reduced EPS. These factors suggest that the business performance wouldn't really justify a high pay packet for the CEO. Looking ahead, you might want to check this free visual report on analyst forecasts for the company's future earnings..
Has Smiths Group plc Been A Good Investment?
Smiths Group plc has served shareholders reasonably well, with a total return of 10% over three years. But they probably don't want to see the CEO paid more than is normal for companies around the same size.
In Summary...
As we noted earlier, Smiths Group pays its CEO in line with similar-sized companies belonging to the same industry. Smiths Group has had a tough time in recent years, with declining EPS growth, and although shareholder returns are stable, they are hardly worth celebrating. These figures do not go well against CEO compensation, which is more or less equal to the industry median. We wouldn't go as far as saying CEO compensation is inappropriate, but we don't think the executive is underpaid.
While CEO pay is an important factor to be aware of, there are other areas that investors should be mindful of as well. We did our research and spotted 4 warning signs for Smiths Group that investors should look into moving forward.
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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About LSE:SMIN
Smiths Group
Operates as an industrial technology company in Americas, Europe, the Asia Pacific, and internationally.
Flawless balance sheet with proven track record and pays a dividend.
