Elizabeth Gaines became the CEO of Fortescue Metals Group Limited (ASX:FMG) in 2018, 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 assess whether Fortescue Metals Group pays its CEO appropriately, considering recent earnings growth and total shareholder returns.
Comparing Fortescue Metals Group Limited's CEO Compensation With the industry
At the time of writing, our data shows that Fortescue Metals Group Limited has a market capitalization of AU$49b, and reported total annual CEO compensation of AU$4.2m for the year to June 2020. We note that's an increase of 20% above last year. While we always look at total compensation first, our analysis shows that the salary component is less, at AU$1.3m.
On comparing similar companies in the industry with market capitalizations above AU$11b, we found that the median total CEO compensation was AU$3.8m. This suggests that Fortescue Metals Group remunerates its CEO largely in line with the industry average. Moreover, Elizabeth Gaines also holds AU$16m worth of Fortescue Metals Group stock directly under their own name, which reveals to us that they have a significant personal stake in the company.
On an industry level, around 70% of total compensation represents salary and 30% is other remuneration. It's interesting to note that Fortescue Metals Group allocates a smaller portion of compensation to salary in comparison to the broader industry. It's important to note that a slant towards non-salary compensation suggests that total pay is tied to the company's performance.
Fortescue Metals Group Limited's Growth
Fortescue Metals Group Limited has seen its earnings per share (EPS) increase by 32% a year over the past three years. It achieved revenue growth of 28% over the last year.
Shareholders would be glad to know that the company has improved itself over the last few years. It's great to see that revenue growth is strong, too. These metrics suggest the business is growing strongly. 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 Fortescue Metals Group Limited Been A Good Investment?
Most shareholders would probably be pleased with Fortescue Metals Group Limited for providing a total return of 357% over three years. 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.
As we noted earlier, Fortescue Metals Group pays its CEO in line with similar-sized companies belonging to the same industry. Investors would surely be happy to see that returns have been great, and that EPS is up. Although the pay is close to the industry median, overall performance is excellent, so we don't think the CEO is paid too generously. In fact, shareholders might even think the CEO deserves a raise as a reward due to the fantastic returns generated.
We can learn a lot about a company by studying its CEO compensation trends, along with looking at other aspects of the business. In our study, we found 2 warning signs for Fortescue Metals Group you should be aware of, and 1 of them can't be ignored.
Arguably, business quality is much more important than CEO compensation levels. So check out this free list of interesting companies that have HIGH return on equity and low debt.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email email@example.com.