Here's Why We Think Contact Energy Limited's (NZSE:CEN) CEO Compensation Looks Fair

Key Insights

• Contact Energy's Annual General Meeting to take place on 14th of November
• CEO Mike Fuge's total compensation includes salary of NZ$1.20m
• The overall pay is 31% below the industry average
• Contact Energy's total shareholder return over the past three years was 15% while its EPS was down 2.5% over the past three years

Performance at Contact Energy Limited (NZSE:CEN) has been rather uninspiring recently and shareholders may be wondering how CEO Mike Fuge plans to fix this. At the next AGM coming up on 14th of November, they can influence managerial decision making through voting on resolutions, including executive remuneration. Voting on executive pay could be a powerful way to influence management, as studies have shown that the right compensation incentives impact company performance. We have prepared some analysis below to show that CEO compensation looks to be reasonable.

Check out our latest analysis for Contact Energy

Comparing Contact Energy Limited's CEO Compensation With The Industry

At the time of writing, our data shows that Contact Energy Limited has a market capitalization of NZ$6.4b, and reported total annual CEO compensation of NZ$2.1m for the year to June 2023. That's mostly flat as compared to the prior year's compensation. In particular, the salary of NZ$1.20m, makes up a fairly large portion of the total compensation being paid to the CEO.

On comparing similar companies from the New Zealand Electric Utilities industry with market caps ranging from NZ$3.4b to NZ$11b, we found that the median CEO total compensation was NZ$3.1m. This suggests that Mike Fuge is paid below the industry median. What's more, Mike Fuge holds NZ$639k worth of shares in the company in their own name.

Component	2023	2022	Proportion (2023)
Salary	NZ$1.2m	NZ$1.2m	56%
Other	NZ$931k	NZ$979k	44%
Total Compensation	NZ$2.1m	NZ$2.1m	100%

On an industry level, roughly 56% of total compensation represents salary and 44% is other remuneration. Contact Energy is largely mirroring the industry average when it comes to the share a salary enjoys in overall compensation. If total compensation veers towards salary, it suggests that the variable portion - which is generally tied to performance, is lower.

A Look at Contact Energy Limited's Growth Numbers

Over the last three years, Contact Energy Limited has shrunk its earnings per share by 2.5% per year. It saw its revenue drop 11% over the last year.

Its a bit disappointing to see that the company has failed to grow its EPS. This is compounded by the fact revenue is actually down on last year. It's hard to argue the company is firing on all cylinders, so shareholders might be averse to high CEO remuneration. Looking ahead, you might want to check this free visual report on analyst forecasts for the company's future earnings..

Has Contact Energy Limited Been A Good Investment?

Contact Energy Limited has generated a total shareholder return of 15% over three years, so most shareholders would be reasonably content. But they would probably prefer not to see CEO compensation far in excess of the median.

In Summary...

Shareholder returns while positive, need to be looked at along with earnings, which have failed to grow and this could mean that the current momentum may not continue. These concerns could be addressed to the board and shareholders should revisit their investment thesis to see if it still makes sense.

CEO compensation is an important area to keep your eyes on, but we've also need to pay attention to other attributes of the company. In our study, we found 2 warning signs for Contact Energy you should be aware of, and 1 of them makes us a bit uncomfortable.

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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.