What has C’s performance been like?Profitability of a company is a strong indication of C’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Corbat’s performance. Over the last year C delivered negative earnings of -US$7.38B , compared to the previous year’s positive earnings. Furthermore, C hasn’t always been loss-making, with an average EPS of US$3.38 over the past five years. During times of negative earnings, the company may be going through a period of reinvestment and growth, or it can be an indication of some headwind. In any case, CEO compensation should echo the current condition of the business. In the latest report, Corbat’s total compensation rose by 33.03% to US$17.80M. Furthermore, Corbat’s pay is also made up of 40.13% non-cash elements, which means that variabilities in C’s share price can affect the true level of what the CEO actually receives.
Is C’s CEO overpaid relative to the market?
While there is no cookie-cutter approach, since compensation should account for specific factors of the company and market, we can evaluate a high-level thresold to see if C is an outlier. This exercise helps investors ask the right question about Corbat’s incentive alignment. On average, a US large-cap is worth around $64.9B, produces earnings of $3.6B and pays its CEO circa $12.2M annually. Normally I would look at market cap and earnings as a proxy for performance, however, C’s negative earnings lower the usefulness of my formula. Analyzing the range of remuneration for large-cap executives, it seems like Corbat’s pay outstrips those in comparable companies.
What this means for you:
In order to determine whether or not you should invest in C, your thesis should be built on fundamentals. Even though CEO pay isn’t technically a key concern, it could serve as an indication as to how board members align incentives and how they think about setting policies. These issues directly impacts how C makes money, and factors impacting your return on investment. If you have not done so already, I urge you to complete your research by taking a look at the following:
- Governance: To find out more about C’s governance, look through our infographic report of the company’s board and management.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of C? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!