Here's Why Shareholders Should Examine Micro Focus International plc's (LON:MCRO) CEO Compensation Package More Closely

Micro Focus International plc (LON:MCRO) has not performed well recently and CEO Stephen Murdoch will probably need to up their game. Shareholders can take the chance to hold the board and management accountable for the unsatisfactory performance at the next AGM on 25 March 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.

View our latest analysis for Micro Focus International

Comparing Micro Focus International plc's CEO Compensation With the industry

According to our data, Micro Focus International plc has a market capitalization of UK£1.6b, and paid its CEO total annual compensation worth US$1.7m over the year to October 2020. We note that's a decrease of 18% compared to last year. In particular, the salary of US$1.10m, makes up a huge portion of the total compensation being paid to the CEO.

On examining similar-sized companies in the industry with market capitalizations between UK£717m and UK£2.3b, we discovered that the median CEO total compensation of that group was US$732k. Accordingly, our analysis reveals that Micro Focus International plc pays Stephen Murdoch north of the industry median. Furthermore, Stephen Murdoch directly owns UK£1.4m worth of shares in the company.

Component	2020	2019	Proportion (2020)
Salary	US$1.1m	US$1.1m	66%
Other	US$562k	US$926k	34%
Total Compensation	US$1.7m	US$2.0m	100%

On an industry level, roughly 71% of total compensation represents salary and 29% is other remuneration. There isn't a significant difference between Micro Focus International and the broader market, in terms of salary allocation in the overall compensation package. If salary is the major component in total compensation, it suggests that the CEO receives a higher fixed proportion of the total compensation, regardless of performance.

A Look at Micro Focus International plc's Growth Numbers

Over the last three years, Micro Focus International plc has shrunk its earnings per share by 119% per year. Its revenue is down 10% over the previous year.

The decline in EPS is a bit concerning. This is compounded by the fact revenue is actually down on last year. 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 Micro Focus International plc Been A Good Investment?

With a total shareholder return of -39% over three years, Micro Focus International plc shareholders would by and large be disappointed. This suggests it would be unwise for the company to pay the CEO too generously.

In Summary...

Not only have shareholders not seen a favorable return on their investment, but the business hasn't performed well either. Few shareholders would be willing to award the CEO with a pay raise. At the upcoming AGM, management will get a chance to explain how they plan to get the business back on track and address the concerns from investors.

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 Micro Focus International that investors should think about before committing capital to this stock.

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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