How Should Investors Feel About MSC Industrial Direct's (NYSE:MSM) CEO Remuneration?

Simply Wall St
January 20, 2021
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Erik Gershwind became the CEO of MSC Industrial Direct Co., Inc. (NYSE:MSM) in 2013, and we think it's a good time to look at the executive's compensation against the backdrop of overall company performance. This analysis will also look to assess whether the CEO is appropriately paid, considering recent earnings growth and investor returns for MSC Industrial Direct.

See our latest analysis for MSC Industrial Direct

Comparing MSC Industrial Direct Co., Inc.'s CEO Compensation With the industry

Our data indicates that MSC Industrial Direct Co., Inc. has a market capitalization of US$4.5b, and total annual CEO compensation was reported as US$4.3m for the year to August 2020. That's a notable increase of 12% on last year. While we always look at total compensation first, our analysis shows that the salary component is less, at US$697k.

On examining similar-sized companies in the industry with market capitalizations between US$2.0b and US$6.4b, we discovered that the median CEO total compensation of that group was US$4.7m. This suggests that MSC Industrial Direct remunerates its CEO largely in line with the industry average. Moreover, Erik Gershwind also holds US$131m worth of MSC Industrial Direct stock directly under their own name, which reveals to us that they have a significant personal stake in the company.

Component20202019Proportion (2020)
Salary US$697k US$763k 16%
Other US$3.6m US$3.1m 84%
Total CompensationUS$4.3m US$3.9m100%

On an industry level, roughly 23% of total compensation represents salary and 77% is other remuneration. It's interesting to note that MSC Industrial Direct allocates a smaller portion of compensation to salary in comparison to the broader industry. It's important to note that a slant towards non-salary compensation suggests that total pay is tied to the company's performance.

NYSE:MSM CEO Compensation January 21st 2021

MSC Industrial Direct Co., Inc.'s Growth

Over the last three years, MSC Industrial Direct Co., Inc. has shrunk its earnings per share by 1.1% per year. Its revenue is down 6.4% over the previous year.

Its a bit disappointing to see that the company has failed to grow its EPS. And the impression is worse when you consider revenue is down year-on-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 MSC Industrial Direct Co., Inc. Been A Good Investment?

MSC Industrial Direct Co., Inc. has generated a total shareholder return of 2.5% over three years, so most shareholders wouldn't be too disappointed. But they probably wouldn't be so happy as to think the CEO should be paid more than is normal, for companies around this size.

To Conclude...

As we noted earlier, MSC Industrial Direct pays its CEO in line with similar-sized companies belonging to the same industry. MSC Industrial Direct has had a poor showing when it comes to EPS growth, and it's tough to say that shareholder returns have done much to excite us. This doesn't compare well with CEO compensation, which is close to the industry median. We wouldn't go as far as saying CEO compensation is inappropriate, but we don't think the executive is underpaid.

CEO compensation is a crucial aspect to keep your eyes on but investors also need to keep their eyes open for other issues related to business performance. We've identified 1 warning sign for MSC Industrial Direct that investors should be aware of in a dynamic business environment.

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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This article by Simply Wall St is general in nature. 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.
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