Is Weight Watchers International Inc’s (NYSE:WTW) CEO Pay Fair?

Leading Weight Watchers International Inc (NYSE:WTW) as the CEO, Mindy Grossman took the company to a valuation of $2.86B. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. I will break down Grossman’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. Check out our latest analysis for Weight Watchers International

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.
NYSE:WTW Past Future Earnings Jan 2nd 18
NYSE:WTW Past Future Earnings Jan 2nd 18

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.

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