We have been pretty impressed with the performance at Shopify Inc. (NYSE:SHOP) recently and CEO Tobi Lütke deserves a mention for their role in it. Shareholders will have this at the front of their minds in the upcoming AGM on 26 May 2021. This would also be a chance for them to hear the board review the financial results, discuss future company strategy and vote on any resolutions such as executive remuneration. Here is our take on why we think CEO compensation is not extravagant.
View our latest analysis for Shopify
Comparing Shopify Inc.'s CEO Compensation With the industry
According to our data, Shopify Inc. has a market capitalization of US$146b, and paid its CEO total annual compensation worth US$15m over the year to December 2020. We note that's an increase of 42% above last year. We think total compensation is more important but our data shows that the CEO salary is lower, at US$105k.
In comparison with other companies in the industry with market capitalizations over US$8.0b , the reported median total CEO compensation was US$12m. So it looks like Shopify compensates Tobi Lütke in line with the median for the industry. Moreover, Tobi Lütke also holds US$8.9b worth of Shopify 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$105k | US$616k | 1% |
| Other | US$15m | US$10m | 99% |
| Total Compensation | US$15m | US$11m | 100% |
On an industry level, roughly 14% of total compensation represents salary and 86% is other remuneration. Shopify has chosen to walk a path less trodden, opting to compensate its CEO with less of a traditional salary and more non-salary rewards over the last year. It's important to note that a slant towards non-salary compensation suggests that total pay is tied to the company's performance.
A Look at Shopify Inc.'s Growth Numbers
Over the past three years, Shopify Inc. has seen its earnings per share (EPS) grow by 120% per year. It achieved revenue growth of 100% over the last year.
Shareholders would be glad to know that the company has improved itself over the last few years. Most shareholders would be pleased to see strong revenue growth combined with EPS growth. This combo suggests a fast growing business. 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 Shopify Inc. Been A Good Investment?
Most shareholders would probably be pleased with Shopify Inc. for providing a total return of 731% over three years. This strong performance might mean some shareholders don't mind if the CEO were to be paid more than is normal for a company of its size.
In Summary...
Shopify primarily uses non-salary benefits to reward its CEO. Seeing that company performance has been quite good recently, some shareholders may feel that CEO compensation may not be the biggest focus in the upcoming AGM. However, despite the strong growth in earnings and share price growth, the focus for shareholders would be how the company plans to steer the company towards sustainable profitability in the near future.
We can learn a lot about a company by studying its CEO compensation trends, along with looking at other aspects of the business. We did our research and identified 4 warning signs (and 1 which is a bit concerning) in Shopify we think you should know about.
Important note: Shopify 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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About NYSE:SHOP
Shopify
A commerce company, provides a commerce platform and services in Canada, the United States, Europe, the Middle East, Africa, the Asia Pacific, Australia, China, and Latin America.
Excellent balance sheet with reasonable growth potential.
