Should Shareholders Reconsider Cars.com Inc.'s (NYSE:CARS) CEO Compensation Package?

The results at Cars.com Inc. (NYSE:CARS) have been quite disappointing recently and CEO T. Vetter bears some responsibility for this. Shareholders can take the chance to hold the board and management accountable for the unsatisfactory performance at the next AGM on 09 June 2021. They will also get a chance to influence managerial decision-making through voting on resolutions such as executive remuneration, which may impact firm value in the future. We present the case why we think CEO compensation is out of sync with company performance.

See our latest analysis for Cars.com

Comparing Cars.com Inc.'s CEO Compensation With the industry

According to our data, Cars.com Inc. has a market capitalization of US$1.0b, and paid its CEO total annual compensation worth US$5.2m over the year to December 2020. That's a notable increase of 14% on last year. We think total compensation is more important but our data shows that the CEO salary is lower, at US$608k.

On comparing similar companies from the same industry with market caps ranging from US$400m to US$1.6b, we found that the median CEO total compensation was US$3.8m. Accordingly, our analysis reveals that Cars.com Inc. pays T. Vetter north of the industry median. Moreover, T. Vetter also holds US$13m worth of Cars.com stock directly under their own name, which reveals to us that they have a significant personal stake in the company.

Component	2020	2019	Proportion (2020)
Salary	US$608k	US$567k	12%
Other	US$4.6m	US$4.0m	88%
Total Compensation	US$5.2m	US$4.6m	100%

Talking in terms of the industry, salary represented approximately 14% of total compensation out of all the companies we analyzed, while other remuneration made up 86% of the pie. It's interesting to note that Cars.com allocates a smaller portion of compensation to salary in comparison to the broader industry. If non-salary compensation dominates total pay, it's an indicator that the executive's salary is tied to company performance.

A Look at Cars.com Inc.'s Growth Numbers

Over the last three years, Cars.com Inc. has shrunk its earnings per share by 86% per year. Its revenue is down 8.0% over the previous year.

The decline in EPS is a bit concerning. And the impression is worse when you consider revenue is down year-on-year. It's hard to argue the company is firing on all cylinders, so shareholders might be averse to high CEO remuneration. Looking ahead, you might want to check this free visual report on analyst forecasts for the company's future earnings..

Has Cars.com Inc. Been A Good Investment?

With a total shareholder return of -45% over three years, Cars.com Inc. shareholders would by and large be disappointed. Therefore, it might be upsetting for shareholders if the CEO were paid generously.

In Summary...

Given that shareholders haven't seen any positive returns on their investment, not to mention the lack of earnings growth, this may suggest that few of them would be willing to award the CEO with a pay rise. At the upcoming AGM, the board will get the chance to explain the steps it plans to take to improve business performance.

CEO compensation can have a massive impact on performance, but it's just one element. That's why we did some digging and identified 1 warning sign for Cars.com that you should be aware of before investing.

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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This article by Simply Wall St 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. Simply Wall St has no position in any stocks mentioned.
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