Andy Smith became the CEO of Smiths Group plc (LON:SMIN) in 2015, and we think it's a good time to look at the executive's compensation against the backdrop of overall company performance. This analysis will also evaluate the appropriateness of CEO compensation when taking into account the earnings and shareholder returns of the company.
How Does Total Compensation For Andy Smith Compare With Other Companies In The Industry?
At the time of writing, our data shows that Smiths Group plc has a market capitalization of UK£5.3b, and reported total annual CEO compensation of UK£2.2m for the year to July 2020. We note that's a decrease of 47% compared to last year. While this analysis focuses on total compensation, it's worth acknowledging that the salary portion is lower, valued at UK£840k.
On comparing similar companies from the same industry with market caps ranging from UK£3.1b to UK£9.3b, we found that the median CEO total compensation was UK£2.2m. This suggests that Smiths Group remunerates its CEO largely in line with the industry average. What's more, Andy Smith holds UK£4.9m worth of shares in the company in their own name, indicating that they have a lot of skin in the game.
On an industry level, around 45% of total compensation represents salary and 55% is other remuneration. Smiths Group sets aside a smaller share of compensation for 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.
A Look at Smiths Group plc's Growth Numbers
Smiths Group plc has reduced its earnings per share by 52% a year over the last three years. It achieved revenue growth of 2.0% over the last year.
Overall this is not a very positive result for shareholders. And the modest revenue growth over 12 months isn't much comfort against the reduced EPS. It's hard to argue the company is firing on all cylinders, so shareholders might be averse to high CEO remuneration. Looking ahead, you might want to check this free visual report on analyst forecasts for the company's future earnings..
Has Smiths Group plc Been A Good Investment?
Given the total shareholder loss of 7.5% over three years, many shareholders in Smiths Group plc are probably rather dissatisfied, to say the least. Therefore, it might be upsetting for shareholders if the CEO were paid generously.
As previously discussed, Andy is compensated close to the median for companies of its size, and which belong to the same industry. On the other hand, EPS growth and total shareholder return have been negative for the last three years. It's tough to call out the compensation as inappropriate, but shareholders might not favor a raise before company performance improves.
While it is important to pay attention to CEO remuneration, investors should also consider other elements of the business. We did our research and spotted 4 warning signs for Smiths Group that investors should look into moving forward.
Switching gears from Smiths Group, if you're hunting for a pristine balance sheet and premium returns, this free list of high return, low debt companies is a great place to look.
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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