We Discuss Why The Cato Corporation's (NYSE:CATO) CEO Compensation May Be Closely Reviewed

Shareholders will probably not be too impressed with the underwhelming results at The Cato Corporation (NYSE:CATO) recently. Shareholders will be interested in what the board will have to say about turning performance around at the next AGM on 20 May 2021. This will be also be a chance where they can challenge the board on company direction and vote on resolutions such as executive remuneration. We present the case why we think CEO compensation is out of sync with company performance.

See our latest analysis for Cato

How Does Total Compensation For John P. Cato Compare With Other Companies In The Industry?

According to our data, The Cato Corporation has a market capitalization of US$289m, and paid its CEO total annual compensation worth US$2.8m over the year to January 2021. We note that's a decrease of 48% compared to last year. We think total compensation is more important but our data shows that the CEO salary is lower, at US$1.1m.

For comparison, other companies in the same industry with market capitalizations ranging between US$100m and US$400m had a median total CEO compensation of US$1.4m. Hence, we can conclude that John P. Cato is remunerated higher than the industry median. Moreover, John P. Cato also holds US$36m worth of Cato stock directly under their own name, which reveals to us that they have a significant personal stake in the company.

Component	2021	2020	Proportion (2021)
Salary	US$1.1m	US$1.3m	40%
Other	US$1.7m	US$4.0m	60%
Total Compensation	US$2.8m	US$5.3m	100%

Speaking on an industry level, nearly 16% of total compensation represents salary, while the remainder of 84% is other remuneration. Cato is paying a higher share of its remuneration through a salary in comparison to the overall industry. If total compensation is slanted towards non-salary benefits, it indicates that CEO pay is linked to company performance.

The Cato Corporation's Growth

Over the last three years, The Cato Corporation has shrunk its earnings per share by 71% per year. Its revenue is down 30% over the previous year.

Overall this is not a very positive result for shareholders. And the impression is worse when you consider revenue is down year-on-year. So given this relatively weak performance, shareholders would probably not want to see high compensation for the CEO. While we don't have analyst forecasts for the company, shareholders might want to examine this detailed historical graph of earnings, revenue and cash flow.

Has The Cato Corporation Been A Good Investment?

With a three year total loss of 14% for the shareholders, The Cato Corporation would certainly have some dissatisfied shareholders. Therefore, it might be upsetting for shareholders if the CEO were paid generously.

To Conclude...

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, management will get a chance to explain how they plan to get the business back on track and address the concerns from investors.

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 Cato that you should be aware of before investing.

Important note: Cato 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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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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