Does Lam Research Corporation’s (NASDAQ:LRCX) CEO Pay Matter?
Leading Lam Research Corporation (NASDAQ:LRCX) as the CEO, Martin Anstice took the company to a valuation of US$27.48b. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. I will break down Anstice’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.
See our latest analysis for Lam Research
What has LRCX’s performance been like?
LRCX can create value to shareholders by increasing its profitability, which in turn is reflected into the share price and the investor’s ability to sell their shares at higher capital gains. Most recently, LRCX produced a profit of US$2.38b , which is an increase of 40.47% from its prior year’s earnings of US$1.69b. This is a positive indication that LRCX has strived to maintain a good track record of profitability in the face of any headwinds. Given earnings are moving the right way, CEO pay should echo Anstice’s value creation for shareholders. In the same year, Anstice’s total compensation increased by 5.69% to US$11.16m. Moreover, Anstice’s pay is also made up of 69.74% non-cash elements, which means that fluxes in LRCX’s share price can move the real level of what the CEO actually receives.
Is LRCX overpaying the CEO?
While no standard benchmark exists, as remuneration should account for specific factors of the company and market, we can evaluate a high-level thresold to see if LRCX is an outlier. This exercise helps investors ask the right question about Anstice’s incentive alignment. On average, a US large-cap is worth around $64.9B, generates earnings of $3.6B and remunerates its CEO at roughly $12.2M per annum. Based on the size of LRCX in terms of market cap, as well as its performance, using earnings as a proxy, it seems that Anstice is paid in-line with other US CEOs of large-caps, on average. This may mean that LRCX is appropriately compensating its CEO.
Next Steps:
CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Is Anstice remunerated appropriately based on other factors we have not covered today? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours. If you have not done so already, I urge you to complete your research by taking a look at the following:
Governance: To find out more about LRCX’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 LRCX? 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
