Should Shareholders Reconsider Forterra plc's (LON:FORT) CEO Compensation Package?

The results at Forterra plc (LON:FORT) have been quite disappointing recently and CEO Stephen Harrison 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 18 May 2021. They will also get a chance to influence managerial decision-making through voting on resolutions such as executive remuneration, which may impact firm value in the future. From our analysis, we think CEO compensation may need a review in light of the recent performance.

See our latest analysis for Forterra

Comparing Forterra plc's CEO Compensation With the industry

According to our data, Forterra plc has a market capitalization of UK£648m, and paid its CEO total annual compensation worth UK£749k over the year to December 2020. We note that's a decrease of 29% compared to last year. In particular, the salary of UK£415.0k, makes up a fairly large portion of the total compensation being paid to the CEO.

On comparing similar companies from the same industry with market caps ranging from UK£283m to UK£1.1b, we found that the median CEO total compensation was UK£462k. This suggests that Stephen Harrison is paid more than the median for the industry. Furthermore, Stephen Harrison directly owns UK£756k worth of shares in the company.

Component	2020	2019	Proportion (2020)
Salary	UK£415k	UK£428k	55%
Other	UK£334k	UK£624k	45%
Total Compensation	UK£749k	UK£1.1m	100%

Speaking on an industry level, nearly 53% of total compensation represents salary, while the remainder of 47% is other remuneration. There isn't a significant difference between Forterra and the broader market, in terms of salary allocation in the overall compensation package. If salary dominates total compensation, it suggests that CEO compensation is leaning less towards the variable component, which is usually linked with performance.

Forterra plc's Growth

Over the last three years, Forterra plc has shrunk its earnings per share by 51% per year. Its revenue is down 23% over the previous year.

Overall this is not a very positive result for shareholders. This is compounded by the fact revenue is actually down on last year. So given this relatively weak performance, shareholders would probably not want to see high compensation for the CEO. 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 Forterra plc Been A Good Investment?

Given the total shareholder loss of 6.4% over three years, many shareholders in Forterra plc are probably rather dissatisfied, to say the least. So shareholders would probably want the company to be less generous with CEO compensation.

In Summary...

Given that shareholders haven't seen any positive returns on their investment, not to mention the lack of earnings growth, this may suggest that few of them would be willing to award the CEO with a pay rise. At the upcoming AGM, the board will get the chance to explain the steps it plans to take to improve business performance.

While CEO pay is an important factor to be aware of, there are other areas that investors should be mindful of as well. That's why we did some digging and identified 2 warning signs for Forterra 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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