Stock Analysis

This Is Why Zimmer Biomet Holdings, Inc.'s (NYSE:ZBH) CEO Compensation Looks Appropriate

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NYSE:ZBH
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Despite strong share price growth of 52% for Zimmer Biomet Holdings, Inc. (NYSE:ZBH) over the last few years, earnings growth has been disappointing, which suggests something is amiss. Some of these issues will occupy shareholders' minds as the AGM rolls around on 14 May 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. In our analysis below, we show why shareholders may consider holding off a raise for the CEO's compensation until company performance improves.

View our latest analysis for Zimmer Biomet Holdings

How Does Total Compensation For Bryan Hanson Compare With Other Companies In The Industry?

At the time of writing, our data shows that Zimmer Biomet Holdings, Inc. has a market capitalization of US$36b, and reported total annual CEO compensation of US$13m for the year to December 2020. Notably, that's an increase of 17% over the year before. While we always look at total compensation first, our analysis shows that the salary component is less, at US$1.1m.

On comparing similar companies in the industry with market capitalizations above US$8.0b, we found that the median total CEO compensation was US$10m. So it looks like Zimmer Biomet Holdings compensates Bryan Hanson in line with the median for the industry. Moreover, Bryan Hanson also holds US$10m worth of Zimmer Biomet Holdings stock directly under their own name, which reveals to us that they have a significant personal stake in the company.

Component20202019Proportion (2020)
Salary US$1.1m US$1.1m 9%
Other US$12m US$10m 91%
Total CompensationUS$13m US$11m100%

Speaking on an industry level, nearly 20% of total compensation represents salary, while the remainder of 80% is other remuneration. Zimmer Biomet Holdings sets aside a smaller share of compensation for salary, in comparison to the overall industry. If non-salary compensation dominates total pay, it's an indicator that the executive's salary is tied to company performance.

ceo-compensation
NYSE:ZBH CEO Compensation May 8th 2021

A Look at Zimmer Biomet Holdings, Inc.'s Growth Numbers

Zimmer Biomet Holdings, Inc. has reduced its earnings per share by 31% a year over the last three years. In the last year, its revenue is down 9.0%.

Few shareholders would be pleased to read that EPS have declined. And the impression is worse when you consider revenue is down year-on-year. These factors suggest that the business performance wouldn't really justify a high pay packet for the CEO. Historical performance can sometimes be a good indicator on what's coming up next but if you want to peer into the company's future you might be interested in this free visualization of analyst forecasts.

Has Zimmer Biomet Holdings, Inc. Been A Good Investment?

Most shareholders would probably be pleased with Zimmer Biomet Holdings, Inc. for providing a total return of 52% over three years. This strong performance might mean some shareholders don't mind if the CEO were to be paid more than is normal for a company of its size.

In Summary...

Despite the strong returns on shareholders' investments, the fact that earnings have failed to grow makes us skeptical about the stock keeping up its current momentum. In the upcoming AGM, shareholders will get the opportunity to discuss any concerns with the board, including those related to CEO remuneration and assess if the board's plan will likely improve performance in the future.

CEO pay is simply one of the many factors that need to be considered while examining business performance. We identified 2 warning signs for Zimmer Biomet Holdings (1 shouldn't be ignored!) that you should be aware of before investing here.

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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