Cliff Pemble took the reins as CEO of Garmin Ltd’s (NASDAQ:GRMN) and grew market cap to US$12.24b recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. Today we will assess Pemble’s pay and compare this to the company’s performance over the same period, as well as measure it against other US CEOs leading companies of similar size and profitability.
Did Pemble create value?Profitability of a company is a strong indication of GRMN’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Pemble’s performance. Over the last year GRMN delivered a profit of US$599.29m compared to its prior year’s earnings of US$676.87m – a decline of -11.46%. However, GRMN has strived to maintain a good track record of profitability, given its average EPS of US$2.78 over the past couple of years. In the situation of fall in profits, the company may be incurring a period of reinvestment and growth, or it can be a sign of some headwind. In any case, CEO compensation should represent the current condition of the business. In the most recent report, Pemble’s total remuneration increased by 14.65% to US$2.43m. Furthermore, Pemble’s pay is also made up of 67.84% non-cash elements, which means that variabilities in GRMN’s share price can move the real level of what the CEO actually receives.
Is GRMN’s CEO overpaid relative to the market?Despite the fact that there is no cookie-cutter approach, since compensation should account for specific factors of the company and market, we can gauge a high-level base line to see if GRMN deviates substantially from its peers. This outcome can help direct shareholders to ask the right question about Pemble’s incentive alignment. Normally, a US large-cap has a value of $64.9B, creates earnings of $3.6B and pays its CEO circa $12.2M per year. Taking into account the size of GRMN in terms of market cap, as well as its performance, using earnings as a proxy, it appears that Pemble is paid less than other US CEOs of large-caps, on average.
CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Is Pemble remunerated appropriately based on other factors we have not covered today? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
- Governance: To find out more about GRMN’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 GRMN? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.