Did Grossman create value?Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Recently, WTW released a profit of $113.8M , which is an increase of 164.94% from its previous year’s earnings of $43.0M. This is an encouraging signal that WTW aims to sustain a strong track record of generating profits regardless of the challenges. As profits are moving up and up, CEO pay should be reflective of Grossman’s hard work. In the same year, Grossman’s total remuneration increased by a mere 1.52% to $0. In addition to this, Grossman’s pay is also comprised of non-cash elements, which means that fluctuations in WTW’s share price can move the actual level of what the CEO actually receives.
Is WTW overpaying the CEO?
Though no standard benchmark exists, as compensation should be tailored to the specific company and market, we can fashion a high-level base line to see if WTW is an outlier. This exercise can help direct shareholders to ask the right question about Grossman’s incentive alignment. Normally, a US mid-cap is worth around $5B, produces earnings of $290M and pays its CEO at roughly $5.3M per annum. Considering WTW’s size and performance, in terms of market cap and earnings, it seems that Grossman is being paid well below other US CEOs of mid-caps, on average.
What this means for you:
Are you a shareholder? My conclusion is that Grossman is not being overpaid. But your role as a shareholder should not end here. As above, this is a relatively simplistic calculation using high-level benchmarket. Proactive shareholders should question their representatives (i.e. the board of directors) how they think about the CEO’s incentive alignment with shareholders and how they balance this with retention and reward. To find out more about WTW’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? Whether Grossman is over or underpaid should not be a deciding factor whether or not you invest in WTW. However, the way the company is governed and policies, such as remuneration, are structured, are important considerations for an investor. The best place to start is to understand how well WTW is placed financially. To research more about these fundamentals, I recommend you check out our simple infographic report on WTW’s financial metrics.PS. If you are not interested in Weight Watchers International anymore, you can use our free platform to see my list of over 50 sustainable companies producing great returns.