Is International Business Machines Corporation (NYSE:IBM) Excessively Paying Its CEO?

Ginni Rometty became the CEO of International Business Machines Corporation (NYSE:IBM) in 2012. This analysis aims first to contrast CEO compensation with other large companies. Then we’ll look at a snap shot of the business growth. And finally we will reflect on how common stockholders have fared in the last few years, as a secondary measure of performance. The aim of all this is to consider the appropriateness of CEO pay levels.

View our latest analysis for International Business Machines

How Does Ginni Rometty’s Compensation Compare With Similar Sized Companies?

At the time of writing our data says that International Business Machines Corporation has a market cap of US$133b, and is paying total annual CEO compensation of US$18m. (This number is for the twelve months until December 2018). We think total compensation is more important but we note that the CEO salary is lower, at US$1.6m. When we examined a group of companies with market caps over US$8.0b, we found that their median CEO total compensation was US$11m. Once you start looking at very large companies, you need to take a broader range, because there simply aren’t that many of them.

It would therefore appear that International Business Machines Corporation pays Ginni Rometty more than the median CEO remuneration at large companies, in the same market. However, this fact alone doesn’t mean the remuneration is too high. We can get a better idea of how generous the pay is by looking at the performance of the underlying business.

You can see a visual representation of the CEO compensation at International Business Machines, below.

NYSE:IBM CEO Compensation, July 25th 2019
NYSE:IBM CEO Compensation, July 25th 2019

Is International Business Machines Corporation Growing?

On average over the last three years, International Business Machines Corporation has shrunk earnings per share by 17% each year (measured with a line of best fit). It saw its revenue drop -3.6% over the last year.

Unfortunately, earnings per share have trended lower over the last three years. And the fact that revenue is down year on year arguably paints an ugly picture. It’s hard to argue the company is firing on all cylinders, so shareholders might be averse to high CEO remuneration.

Has International Business Machines Corporation Been A Good Investment?

With a total shareholder return of 4.9% over three years, International Business Machines Corporation has done okay by shareholders. But they probably wouldn’t be so happy as to think the CEO should be paid more than is normal, for companies around this size.

In Summary…

We examined the amount International Business Machines Corporation pays its CEO, and compared it to the amount paid by other large companies. As discussed above, we discovered that the company pays more than the median of that group.

Neither earnings per share nor revenue have been growing sufficiently fast to impress us, over the last three years.

And shareholder returns are decent but not great. So you may want to delve deeper, because we don’t think the CEO pay is too low. Shareholders may want to check for free if International Business Machines insiders are buying or selling shares.

Important note: International Business Machines may not be the best stock to buy. You might find something better in this list of interesting companies with high ROE and low debt.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.