John Arabia has been the CEO of Sunstone Hotel Investors, Inc. (NYSE:SHO) since 2015, and this article will examine the executive's compensation with respect to the overall performance of the company. This analysis will also evaluate the appropriateness of CEO compensation when taking into account the funds from operations and shareholder returns of the company.
How Does Total Compensation For John Arabia Compare With Other Companies In The Industry?
According to our data, Sunstone Hotel Investors, Inc. has a market capitalization of US$2.4b, and paid its CEO total annual compensation worth US$5.6m over the year to December 2019. That's a notable increase of 8.2% on last year. While we always look at total compensation first, our analysis shows that the salary component is less, at US$808k.
For comparison, other companies in the same industry with market capitalizations ranging between US$1.0b and US$3.2b had a median total CEO compensation of US$4.4m. So it looks like Sunstone Hotel Investors compensates John Arabia in line with the median for the industry. Furthermore, John Arabia directly owns US$12m worth of shares in the company, implying that they are deeply invested in the company's success.
On an industry level, around 15% of total compensation represents salary and 85% is other remuneration. There isn't a significant difference between Sunstone Hotel Investors and the broader market, in terms of salary allocation in the overall compensation package. It's important to note that a slant towards non-salary compensation suggests that total pay is tied to the company's performance.
Sunstone Hotel Investors, Inc.'s Growth
Funds from operations (FFO) reported by Sunstone Hotel Investors saw a setback this year, falling from US$248m last year to -US$87m at the last update. It saw its revenue drop 55% over the last year.
Its a bit disappointing to see that the company has failed to grow its . This is compounded by the fact revenue is actually down on last 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 Sunstone Hotel Investors, Inc. Been A Good Investment?
Given the total shareholder loss of 25% over three years, many shareholders in Sunstone Hotel Investors, Inc. are probably rather dissatisfied, to say the least. Therefore, it might be upsetting for shareholders if the CEO were paid generously.
As we noted earlier, Sunstone Hotel Investors pays its CEO in line with similar-sized companies belonging to the same industry. On the other hand, growth and total shareholder return have been negative for the last three years. Considering overall performance, shareholders will likely hold off support for a raise until results improve.
CEO pay is simply one of the many factors that need to be considered while examining business performance. We identified 2 warning signs for Sunstone Hotel Investors (1 is potentially serious!) that you should be aware of before investing here.
Important note: Sunstone Hotel Investors is an exciting stock, but we understand investors may be looking for an unencumbered balance sheet and blockbuster returns. You might find something better in this list of interesting companies with high ROE and low debt.
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