Stock Analysis

Severn Trent Plc's (LON:SVT) CEO Compensation Looks Acceptable To Us And Here's Why

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Despite strong share price growth of 40% for Severn Trent Plc (LON:SVT) over the last few years, earnings growth has been disappointing, which suggests something is amiss. Some of these issues will occupy shareholders' minds as the AGM rolls around on 08 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. In our analysis below, we show why shareholders may consider holding off a raise for the CEO's compensation until company performance improves.

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Comparing Severn Trent Plc's CEO Compensation With the industry

Our data indicates that Severn Trent Plc has a market capitalization of UK£6.4b, and total annual CEO compensation was reported as UK£2.8m for the year to March 2021. This means that the compensation hasn't changed much from last year. We think total compensation is more important but our data shows that the CEO salary is lower, at UK£738k.

On comparing similar companies from the same industry with market caps ranging from UK£2.9b to UK£8.7b, we found that the median CEO total compensation was UK£2.8m. So it looks like Severn Trent compensates Liv Garfield in line with the median for the industry. Moreover, Liv Garfield also holds UK£6.1m worth of Severn Trent stock directly under their own name, which reveals to us that they have a significant personal stake in the company.

Component20212020Proportion (2021)
Salary UK£738k UK£721k 26%
Other UK£2.1m UK£2.0m 74%
Total CompensationUK£2.8m UK£2.8m100%

On an industry level, around 54% of total compensation represents salary and 46% is other remuneration. It's interesting to note that Severn Trent allocates a smaller portion of compensation to salary 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:SVT CEO Compensation July 3rd 2021

A Look at Severn Trent Plc's Growth Numbers

Over the last three years, Severn Trent Plc has shrunk its earnings per share by 4.3% per year. In the last year, its revenue is down 1.3%.

The decline in EPS is a bit concerning. And the fact that revenue is down year on year arguably paints an ugly picture. 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 Severn Trent Plc Been A Good Investment?

Most shareholders would probably be pleased with Severn Trent Plc for providing a total return of 40% over three years. This strong performance might mean some shareholders don't mind if the CEO were to be paid more than is normal for a company of its size.

To Conclude...

While the return to shareholders does look promising, it's hard to ignore the lack of earnings growth and this makes us question whether these strong returns will continue. In the upcoming AGM, shareholders will get the opportunity to discuss any concerns with the board, including those related to CEO remuneration and assess if the board's plan will likely improve performance in the future.

CEO pay is simply one of the many factors that need to be considered while examining business performance. We identified 3 warning signs for Severn Trent (1 doesn't sit too well with us!) that you should be aware of before investing here.

Important note: Severn Trent is an exciting stock, but we understand investors may be looking for an unencumbered balance sheet and blockbuster returns. You might find something better in this list of interesting companies with high ROE and low debt.

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