The impressive results at Carvana Co. (NYSE:CVNA) recently will be great news for shareholders. At the upcoming AGM on 03 May 2021, they will get a chance to hear the board review the company results, discuss future strategy and cast their vote on any resolutions such as executive remuneration. Here we will show why we think CEO compensation is appropriate and discuss the case for a pay rise.
Comparing Carvana Co.'s CEO Compensation With the industry
At the time of writing, our data shows that Carvana Co. has a market capitalization of US$51b, and reported total annual CEO compensation of US$2.6m for the year to December 2020. That's a notable decrease of 12% on last year. We think total compensation is more important but our data shows that the CEO salary is lower, at US$412k.
In comparison with other companies in the industry with market capitalizations over US$8.0b , the reported median total CEO compensation was US$12m. This suggests that Ernie Garcia is paid below the industry median. What's more, Ernie Garcia holds US$206m 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 16% of total compensation represents salary and 84% is other remuneration. Although there is a difference in how total compensation is set, Carvana more or less reflects the market in terms of setting the salary. If non-salary compensation dominates total pay, it's an indicator that the executive's salary is tied to company performance.
Carvana Co.'s Growth
Carvana Co.'s earnings per share (EPS) grew 17% per year over the last three years. It achieved revenue growth of 42% over the last year.
Shareholders would be glad to know that the company has improved itself over the last few years. The combination of strong revenue growth with medium-term EPS improvement certainly points to the kind of growth we like to see. Moving away from current form for a second, it could be important to check this free visual depiction of what analysts expect for the future.
Has Carvana Co. Been A Good Investment?
Most shareholders would probably be pleased with Carvana Co. for providing a total return of 1,023% over three years. As a result, some may believe the CEO should be paid more than is normal for companies of similar size.
Seeing that company performance has been quite good recently, some shareholders may feel that CEO compensation may not be the biggest focus in the upcoming AGM. Seeing that earnings growth and share price performance seems to be on the right path, the more pressing focus for shareholders at the AGM may be how the board and management plans to turn the company into a sustainably profitable one.
CEO pay is simply one of the many factors that need to be considered while examining business performance. We did our research and identified 2 warning signs (and 1 which is a bit unpleasant) in Carvana we think you should know about.
Important note: Carvana 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. 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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