Yahoo Finance Most Shareholders Will Probably Agree With Australian Foundation Investment Company Limited's (ASX:AFI) CEO Compensation
Performance at Australian Foundation Investment Company Limited (ASX:AFI) has been rather uninspiring recently and shareholders may be wondering how CEO Robert Freeman plans to fix this. One way they can exercise their influence on management is through voting on resolutions, such as executive remuneration at the next AGM, coming up on 04 October 2021. It has been shown that setting appropriate executive remuneration incentivises the management to act in the interests of shareholders. We have prepared some analysis below to show that CEO compensation looks to be reasonable.
View our latest analysis for Australian Foundation Investment
How Does Total Compensation For Robert Freeman Compare With Other Companies In The Industry?
At the time of writing, our data shows that Australian Foundation Investment Company Limited has a market capitalization of AU$10b, and reported total annual CEO compensation of AU$1.5m for the year to June 2021. Notably, that's an increase of 30% over the year before. Notably, the salary which is AU$859.3k, represents a considerable chunk of the total compensation being paid.
On examining similar-sized companies in the industry with market capitalizations between AU$5.5b and AU$16b, we discovered that the median CEO total compensation of that group was AU$4.4m. Accordingly, Australian Foundation Investment pays its CEO under the industry median. Furthermore, Robert Freeman directly owns AU$1.4m worth of shares in the company.
Component | 2021 | 2020 | Proportion (2021) |
Salary | AU$859k | AU$842k | 59% |
Other | AU$597k | AU$274k | 41% |
Total Compensation | AU$1.5m | AU$1.1m | 100% |
On an industry level, roughly 61% of total compensation represents salary and 39% is other remuneration. Although there is a difference in how total compensation is set, Australian Foundation Investment more or less reflects the market in terms of setting the salary. If salary is the major component in total compensation, it suggests that the CEO receives a higher fixed proportion of the total compensation, regardless of performance.
Australian Foundation Investment Company Limited's Growth
Over the last three years, Australian Foundation Investment Company Limited has shrunk its earnings per share by 6.7% per year. Revenue was pretty flat on last year.
Overall this is not a very positive result for shareholders. And the flat revenue is seriously uninspiring. It's hard to argue the company is firing on all cylinders, so shareholders might be averse to high CEO remuneration. Although we don't have analyst forecasts, you might want to assess this data-rich visualization of earnings, revenue and cash flow.
Has Australian Foundation Investment Company Limited Been A Good Investment?
We think that the total shareholder return of 51%, over three years, would leave most Australian Foundation Investment Company Limited shareholders smiling. So they may not be at all concerned if the CEO were to be paid more than is normal for companies around the same size.
To Conclude...
While the return to shareholders does look promising, it's hard to ignore the lack of earnings growth and this makes us wonder if these strong returns can continue. These are are some concerns that shareholders may want to address the board when they revisit their investment thesis.
It is always advisable to analyse CEO pay, along with performing a thorough analysis of the company's key performance areas. We identified 2 warning signs for Australian Foundation Investment (1 makes us a bit uncomfortable!) that you should be aware of before investing here.
Important note: Australian Foundation Investment 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.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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