Did Naughton create value?
Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Over the last year AVB released a profit of US$780.45M , which is a rather significant decline from its prior year’s profit (excluding extraordinary items) of US$1.03B. However, AVB has strived to sustain a strong track record of generating profits, given its average EPS of US$4.00 over the past couple of years. In the situation of declining earnings, the company may be going through a period of reinvestment and growth, or it can be an indication of some headwind. Regardless, CEO compensation should represent the current condition of the business. From the latest financial report, Naughton's total remuneration rose by 17.87% to US$7.89M. Moreover, Naughton's pay is also made up of 18.18% non-cash elements, which means that fluxes in AVB's share price can impact the actual level of what the CEO actually receives.Is AVB overpaying the CEO?
Though no standard benchmark exists, since remuneration should account for specific factors of the company and market, we can gauge a high-level base line to see if AVB is an outlier. This exercise can help direct shareholders to ask the right question about Naughton’s incentive alignment. Typically, a US large-cap is worth around $64.9B, produces earnings of $3.6B and pays its CEO at roughly $12.2M annually. Based on AVB's size and performance, in terms of market cap and earnings, it appears that Naughton is paid in-line with the average US large-cap CEO This may mean that AVB is appropriately compensating its CEO.
Next Steps:
In order to determine whether or not you should invest in AVB, your thesis should be built on fundamentals. Even though CEO pay isn't technically a key concern, it could serve as an indication as to how board members align incentives and how they think about setting policies. These issues directly impacts how AVB makes money, and factors impacting your return on investment. 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 AVB'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 AVB? 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 analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.