Steve Voorhees took the reins as CEO of WestRock Company’s (NYSE:WRK) and grew market cap to US$14.29b recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. 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 Voorhees’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.
What has been the trend in WRK’s earnings?WRK can create value to shareholders by increasing its profitability, which in turn is reflected into the share price and the investor’s ability to sell their shares at higher capital gains. Over the last year WRK produced a profit of US$1.88b , which is an increase of 658.04% from its last year’s earnings of US$248.30m. This is a positive indication that WRK has strived to maintain a good track record of profitability in the face of any headwinds. Given earnings are moving the right way, CEO pay should echo Voorhees’s hard work. During the same period, Voorhees’s total compensation rose by 6.04% to US$11.39m. Moreover, Voorhees’s pay is also made up of 70.50% non-cash elements, which means that variabilities in WRK’s share price can impact the actual level of what the CEO actually receives.
What’s a reasonable CEO compensation?
Despite the fact that no standard benchmark exists, since remuneration should be tailored to the specific company and market, we can estimate a high-level benchmark to see if WRK is an outlier. This exercise can help shareholders ask the right question about Voorhees’s incentive alignment. Generally, a US large-cap has a value of $64.9B, produces earnings of $3.6B and pays its CEO at roughly $12.2M per annum. Based on the size of WRK in terms of market cap, as well as its performance, using earnings as a proxy, it appears that Voorhees is paid in-line with other comparable US CEOs of profitable large-caps. This indicates that Voorhees’s pay is fair.
Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in WRK, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. If you have not done so already, I urge you to complete your research by taking a look at the following:
- Governance: To find out more about WRK’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 WRK? 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 past 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.