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Is Magna International Inc.'s (TSE:MG) CEO Being Overpaid?

In 2010 Don Walker was appointed CEO of Magna International Inc. (TSE:MG). This report will, first, examine the CEO compensation levels in comparison to CEO compensation at companies of similar size. Next, we'll consider growth that the business demonstrates. Third, we'll reflect on the total return to shareholders over three years, as a second measure of business performance. The aim of all this is to consider the appropriateness of CEO pay levels.

View our latest analysis for Magna International

How Does Don Walker's Compensation Compare With Similar Sized Companies?

According to our data, Magna International Inc. has a market capitalization of CA$14b, and paid its CEO total annual compensation worth US$20m over the year to December 2018. While we always look at total compensation first, we note that the salary component is less, at US$325k. Importantly, there may be performance hurdles relating to the non-salary component of the total compensation. When we examined a selection of companies with market caps ranging from US$4.0b to US$12b, we found the median CEO total compensation was US$3.5m.

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Pay mix tells us a lot about how a company functions versus the wider industry, and it's no different in the case of Magna International. On an industry level, roughly 21% of total compensation represents salary and 79% is other remuneration. A high-salary is usually a no-brainer when it comes to attracting the best executives, but Magna International paid Don Walker a nominal salary to the CEO over the past 12 months, instead focusing on non-salary compensation.

Thus we can conclude that Don Walker receives more in total compensation than the median of a group of companies in the same market, and of similar size to Magna International Inc.. However, this doesn't necessarily mean the pay 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, below, how CEO compensation at Magna International has changed over time.

TSX:MG CEO Compensation April 1st 2020
TSX:MG CEO Compensation April 1st 2020

Is Magna International Inc. Growing?

Over the last three years Magna International Inc. has seen earnings per share (EPS) move in a positive direction by an average of 7.6% per year (using a line of best fit). In the last year, its revenue is down 3.4%.

I would argue that the lack of revenue growth in the last year is less than ideal, but it is good to see EPS growth. It's hard to reach a conclusion about business performance right now. This may be one to watch. It could be important to check this free visual depiction of what analysts expect for the future.

Has Magna International Inc. Been A Good Investment?

Since shareholders would have lost about 9.0% over three years, some Magna International Inc. shareholders would surely be feeling negative emotions. This suggests it would be unwise for the company to pay the CEO too generously.

In Summary...

We examined the amount Magna International Inc. pays its CEO, and compared it to the amount paid by similar sized companies. We found that it pays well over the median amount paid in the benchmark group.

While we have not been overly impressed by the business performance, the shareholder returns, over three years, have been disappointing. Shareholders may wish to consider further research. Although we don't think the CEO pay is too high, it is probably more on the generous side of things. Moving away from CEO compensation for the moment, we've identified 1 warning sign for Magna International that you should be aware of before investing.

Important note: Magna International 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.

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.

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. Thank you for reading.