Leading Constellation Brands Inc (NYSE:STZ) as the CEO, Rob Sands took the company to a valuation of US$40.80b. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. I will break down Sands’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 Sands create value?Earnings is a powerful indication of STZ’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Sands’s performance in the past year. Recently, STZ delivered a profit of US$2.66b , which is an increase of 64.94% from its last year’s earnings of US$1.62b. This is an encouraging signal that STZ aims to sustain a strong track record of generating profits regardless of the challenges. As profits are moving up and up, CEO pay should represent Sands’s hard work. Over the same period Sands’s total compensation rose by 13.39% to US$10.84m. Moreover, Sands’s pay is also made up of 54.20% non-cash elements, which means that variabilities in STZ’s share price can affect the real level of what the CEO actually takes home at the end of the day.
Is STZ’s CEO overpaid relative to the market?
While one size does not fit all, since compensation should be tailored to the specific company and market, we can fashion a high-level thresold to see if STZ deviates substantially from its peers. This outcome helps investors ask the right question about Sands’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 per annum. Based on STZ’s size and performance, in terms of market cap and earnings, it seems that Sands is compensated similar to other comparable US CEOs of profitable large-caps. This could mean Sands is paid a suitable level.
Hopefully this article has given you insight on how shareholders should think about STZ’s governance policies such as CEO pay. As an investor, you have the right to understand how the board thinks about management incentives, and also the right to vote for and against substantial CEO pay changes. Governance is a big factor in investing, and I encourage you to dig deeper into those that represent your voice on the board. 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 STZ’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 STZ? 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 pass 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 firstname.lastname@example.org.