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Lip-Bu Tan has been the CEO of Cadence Design Systems, Inc. (NASDAQ:CDNS) since 2009. This analysis aims first to contrast CEO compensation with other large companies. After that, we will consider the growth in the business. And finally we will reflect on how common stockholders have fared in the last few years, as a secondary measure of performance. This process should give us an idea about how appropriately the CEO is paid.
How Does Lip-Bu Tan's Compensation Compare With Similar Sized Companies?
At the time of writing our data says that Cadence Design Systems, Inc. has a market cap of US$20b, and is paying total annual CEO compensation of US$7.6m. (This is based on the year to December 2018). That's actually a decrease on the year before. While we always look at total compensation first, we note that the salary component is less, at US$725k. We took a group of companies with market capitalizations over US$8.0b, and calculated the median CEO total compensation to be US$11m. There aren't very many mega-cap companies, so we had to take a wide range to get a meaningful comparison figure.
Most shareholders would consider it a positive that Lip-Bu Tan takes less in total compensation than the CEOs of most other large companies, leaving more for shareholders. While this is a good thing, you'll need to understand the business better before you can form an opinion.
You can see a visual representation of the CEO compensation at Cadence Design Systems, below.
Is Cadence Design Systems, Inc. Growing?
Cadence Design Systems, Inc. has increased its earnings per share (EPS) by an average of 12% a year, over the last three years (using a line of best fit). In the last year, its revenue is up 11%.
This demonstrates that the company has been improving recently. A good result. It's a real positive to see this sort of growth in a single year. That suggests a healthy and growing business. Shareholders might be interested in this free visualization of analyst forecasts.
Has Cadence Design Systems, Inc. Been A Good Investment?
Boasting a total shareholder return of 197% over three years, Cadence Design Systems, Inc. has done well by shareholders. 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.
Cadence Design Systems, Inc. is currently paying its CEO below what is normal for large companies. Since the business is growing, many would argue this suggests the pay is modest. And given most shareholders are probably very happy with recent returns, you might even think that Lip-Bu Tan deserves a raise!
It's not often we see shareholders do so well, and yet the CEO is paid modestly. But it is even better if company insiders are also buying shares with their own money. So you may want to check if insiders are buying Cadence Design Systems shares with their own money (free access).
Important note: Cadence Design Systems 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.
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.
If you spot an error that warrants correction, please contact the editor at email@example.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. Thank you for reading.