Despite strong share price growth of 41% for Shake Shack Inc. (NYSE:SHAK) over the last few years, earnings growth has been disappointing, which suggests something is amiss. These concerns will be at the front of shareholders' minds as they go into the AGM coming up on 09 June 2021. One way that shareholders can influence managerial decisions is through voting on CEO and executive remuneration packages, which studies show could impact company performance. 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.
Comparing Shake Shack Inc.'s CEO Compensation With the industry
At the time of writing, our data shows that Shake Shack Inc. has a market capitalization of US$3.8b, and reported total annual CEO compensation of US$2.7m for the year to December 2020. That's a notable increase of 18% on last year. While this analysis focuses on total compensation, it's worth acknowledging that the salary portion is lower, valued at US$612k.
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$3.6m. So it looks like Shake Shack compensates Randy Garutti in line with the median for the industry. Furthermore, Randy Garutti directly owns US$3.0m worth of shares in the company, implying that they are deeply invested in the company's success.
On an industry level, roughly 22% of total compensation represents salary and 78% is other remuneration. Although there is a difference in how total compensation is set, Shake Shack more or less reflects the market in terms of setting the salary. If non-salary compensation dominates total pay, it's an indicator that the executive's salary is tied to company performance.
A Look at Shake Shack Inc.'s Growth Numbers
Over the last three years, Shake Shack Inc. has shrunk its earnings per share by 77% per year. In the last year, its revenue is down 11%.
Overall this is not a very positive result for shareholders. And the fact that revenue is down year on year arguably paints an ugly picture. These factors suggest that the business performance wouldn't really justify a high pay packet for the CEO. Moving away from current form for a second, it could be important to check this free visual depiction of what analysts expect for the future.
Has Shake Shack Inc. Been A Good Investment?
Boasting a total shareholder return of 41% over three years, Shake Shack Inc. has done well by shareholders. 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.
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. The upcoming AGM will provide shareholders the opportunity to revisit the company’s remuneration policies and evaluate if the board’s judgement and decision-making is aligned with that of the company’s shareholders.
It is always advisable to analyse CEO pay, along with performing a thorough analysis of the company's key performance areas. That's why we did our research, and identified 2 warning signs for Shake Shack (of which 1 shouldn't be ignored!) that you should know about in order to have a holistic understanding of the stock.
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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