Is AXIS Capital Holdings Limited (NYSE:AXS) Excessively Paying Its CEO?
Leading AXIS Capital Holdings Limited (NYSE:AXS) as the CEO, Albert Benchimol took the company to a valuation of US$4.65B. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. Today we will assess Benchimol’s pay and compare this to the company’s performance over the same period, as well as measure it against other US CEOs leading companies of similar size and profitability. View our latest analysis for AXIS Capital Holdings
Did Benchimol create value?
Earnings is a powerful indication of AXS’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Benchimol’s performance in the past year. Most recently, AXS produced negative earnings of -US$415.78M , compared to the previous year’s positive earnings. Furthermore, AXS hasn’t always been loss-making, with an average EPS of US$4.31 over the past five years. During times of negative earnings, the company may be facing a period of reinvestment and growth, or it can be an indication of some headwind. Regardless, CEO compensation should emulate the current state of the business. In the most recent financial report, Benchimol’s total remuneration dropped by -17.48%, to US$7.05M. Moreover, Benchimol’s pay is also made up of 50.09% non-cash elements, which means that variabilities in AXS’s share price can move the real level of what the CEO actually collects at the end of the year.
Is AXS’s CEO overpaid relative to the market?
Though one size does not fit all, as compensation should account for specific factors of the company and market, we can gauge a high-level thresold to see if AXS is an outlier. This outcome can help direct shareholders to ask the right question about Benchimol’s incentive alignment. Normally, a US mid-cap has a value of $5B, generates earnings of $290M and remunerates its CEO at roughly $5.3M annually. Usually I would look at market cap and earnings as a proxy for performance, however, AXS’s negative earnings lower the effectiveness of this method. Looking at the range of compensation for mid-cap executives, it seems like Benchimol’s pay is above other similar companies.
What this means for you:
The next CEO pay bump should be questioned by shareholders at AGM voting. Given that Benchimol’s pay is already above the bracket of other CEOs of similar companies, what justifies a further increase? Although CEO pay is not the be all and end all, it serves as a signal as to whether the board’s and management’s incentives are aligned with the rest of the shareholders. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
Governance: To find out more about AXS’s governance, look through our infographic report of the company’s board and management.
Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of AXS? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
