Here's Why We Think McGrath RentCorp's (NASDAQ:MGRC) CEO Compensation Looks Fair for the time being

Simply Wall St
June 02, 2021
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The share price of McGrath RentCorp ( NASDAQ:MGRC ) 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 09 June 2021. It would also be an opportunity for them to influence management through exercising their voting power on company resolutions, including CEO and executive remuneration, which could impact on firm performance in the future. From the data that we gathered, we think that shareholders should hold off on a raise on CEO compensation until performance starts to show some improvement.

View our latest analysis for McGrath RentCorp

Comparing McGrath RentCorp's CEO Compensation With the industry

At the time of writing, our data shows that McGrath RentCorp has a market capitalization of US$2.1b, and reported total annual CEO compensation of US$2.7m for the year to December 2020. This means that the compensation hasn't changed much from last year. While this analysis focuses on total compensation, it's worth acknowledging that the salary portion is lower, valued at US$644k.

For comparison, other companies in the same industry with market capitalizations ranging between US$1.0b and US$3.2b had a median total CEO compensation of US$2.9m. From this we gather that Joe Hanna is paid around the median for CEOs in the industry. What's more, Joe Hanna holds US$8.0m worth of shares in the company in their own name, indicating that they have a lot of skin in the game.

Component 2020 2019 Proportion (2020)
Salary US$644k US$624k 24%
Other US$2.0m US$2.0m 76%
Total Compensation US$2.7m US$2.6m 100%

On an industry level, roughly 24% of total compensation represents salary and 76% is other remuneration. There isn't a significant difference between McGrath RentCorp and the broader market, in terms of salary allocation in the overall compensation package. If non-salary compensation dominates total pay, it's an indicator that the executive's salary is tied to company performance.

NasdaqGS:MGRC CEO Compensation June 3rd 2021

A Look at McGrath RentCorp's Growth Numbers

Over the last three years, McGrath RentCorp has shrunk its earnings per share by 15% per year. It saw its revenue drop 2.3% over the last year. However, it should be noted that the earnings in 2018 included a one off boost due to tax cuts, so taking that into account, the earnings have actually been rising in recent years.

While earnings have been rising 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. Historical performance can sometimes be a good indicator on what's coming up next but if you want to peer into the company's future you might be interested in this free visualization of analyst forecasts.

Has McGrath RentCorp Been A Good Investment?

We think that the total shareholder return of 37%, over three years, would leave most McGrath RentCorp shareholders smiling. So they may not be at all concerned if the CEO were to be paid more than is normal for companies around the same 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. 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.

While CEO pay is an important factor to be aware of, there are other areas that investors should be mindful of as well. We've identified 1 warning sign for McGrath RentCorp that investors should be aware of in a dynamic business environment.

Important note: McGrath RentCorp 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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