Stock Analysis

Shareholders May Not Be So Generous With National Grid plc's (LON:NG.) CEO Compensation And Here's Why

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The share price of National Grid plc (LON:NG.) has increased significantly over the past few years. However, the earnings growth has not kept up with the share price momentum, suggesting that some other factors may be driving the price direction. Some of these issues will occupy shareholders' minds as the AGM rolls around on 26 July 2021. 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 what we gathered, we think shareholders should be wary of raising CEO compensation until the company shows some marked improvement.

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Comparing National Grid plc's CEO Compensation With the industry

At the time of writing, our data shows that National Grid plc has a market capitalization of UK£33b, and reported total annual CEO compensation of UK£5.1m for the year to March 2021. That is, the compensation was roughly the same as last year. While this analysis focuses on total compensation, it's worth acknowledging that the salary portion is lower, valued at UK£1.0m.

In comparison with other companies in the industry with market capitalizations over UK£5.8b , the reported median total CEO compensation was UK£2.6m. Hence, we can conclude that John Pettigrew is remunerated higher than the industry median. Furthermore, John Pettigrew directly owns UK£8.4m worth of shares in the company, implying that they are deeply invested in the company's success.

Component20212020Proportion (2021)
Salary UK£1.0m UK£1.0m 20%
Other UK£4.0m UK£4.2m 80%
Total CompensationUK£5.1m UK£5.2m100%

Talking in terms of the industry, salary represented approximately 35% of total compensation out of all the companies we analyzed, while other remuneration made up 65% of the pie. In National Grid'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.

LSE:NG. CEO Compensation July 20th 2021

National Grid plc's Growth

National Grid plc has reduced its earnings per share by 23% a year over the last three years. Its revenue is up 1.6% over the last year.

Few shareholders would be pleased to read that EPS have declined. And the modest revenue growth over 12 months isn't much comfort against the reduced EPS. So given this relatively weak performance, shareholders would probably not want to see high compensation for the CEO. Looking ahead, you might want to check this free visual report on analyst forecasts for the company's future earnings..

Has National Grid plc Been A Good Investment?

Boasting a total shareholder return of 34% over three years, National Grid plc has done well by shareholders. As a result, some may believe the CEO should be paid more than is normal for companies of similar size.

In Summary...

Although shareholders would be quite happy with the returns they have earned on their initial investment, earnings have failed to grow and this could mean returns may be hard to keep up. Shareholders should make the most of the coming opportunity to question the board on key concerns they may have and revisit their investment thesis with regards to the company.

CEO pay is simply one of the many factors that need to be considered while examining business performance. In our study, we found 2 warning signs for National Grid you should be aware of, and 1 of them makes us a bit uncomfortable.

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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