How Should Investors Feel About Enterprise Products Partners LP.'s (NYSE:EPD) CEO Pay?

By
Simply Wall St
Published
June 01, 2018
NYSE:EPD
Jim Teague took the helm as Enterprise Products Partners LP.'s (NYSE:EPD) CEO and grew market cap to US$62.20B recently. 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 Teague’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. See our latest analysis for Enterprise Products Partners

Did Teague create value?

Profitability of a company is a strong indication of EPD's ability to generate returns on shareholders' funds through corporate activities. In this exercise, I will use profits as a proxy for Teague's performance. Over the last year EPD produced an earnings of US$2.92B , which is an increase of 12.46% from its last year's earnings of US$2.60B. This is a positive indication that EPD has strived to maintain a good track record of profitability in the face of any headwinds. As profits are moving up and up, CEO pay should echo Teague's value creation for shareholders. Over the same period Teague's total compensation rose by a mere 2.69% to US$7.70M. In addition to this, Teague's pay is also made up of 24.98% non-cash elements, which means that fluctuations in EPD's share price can move the true level of what the CEO actually takes home at the end of the day.
NYSE:EPD Past Future Earnings Jun 1st 18
NYSE:EPD Past Future Earnings Jun 1st 18

Is EPD's CEO overpaid relative to the market?

Though one size does not fit all, since compensation should be tailored to the specific company and market, we can estimate a high-level benchmark to see if EPD deviates substantially from its peers. This outcome can help direct shareholders to ask the right question about Teague’s incentive alignment. Normally, a US large-cap has a value of $64.9B, generates earnings of $3.6B and remunerates its CEO circa $12.2M annually. Taking into account the size of EPD in terms of market cap, as well as its performance, using earnings as a proxy, it seems that Teague is paid in-line with other US CEOs of large-caps, on average. This may mean that EPD is appropriately compensating its CEO.

Next Steps:

You can breathe easy knowing that shareholder funds aren't being used to overpay EPD's CEO. However, on the flipside, you should ask whether Teague is appropriately remunerated on the basis of retention. Its important for shareholders to be active in voting governance decisions, as board members are only representatives of investors' voices. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

  1. Governance: To find out more about EPD's governance, look through our infographic report of the company's board and management.
  2. 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.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of EPD? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

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Simply Wall St has no position in any of the companies mentioned. This article 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.
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