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Is Eaton Corporation plc's (NYSE:ETN) CEO Being Overpaid?

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Simply Wall St
·4 min read
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The CEO of Eaton Corporation plc (NYSE:ETN) is Craig Arnold. This report will, first, examine the CEO compensation levels in comparison to CEO compensation at other big companies. Then we'll look at a snap shot of the business growth. Third, we'll reflect on the total return to shareholders over three years, as a second measure of business performance. The aim of all this is to consider the appropriateness of CEO pay levels.

View our latest analysis for Eaton

How Does Craig Arnold's Compensation Compare With Similar Sized Companies?

Our data indicates that Eaton Corporation plc is worth US$34b, and total annual CEO compensation was reported as US$20m for the year to December 2019. We note that's an increase of 36% above last year. While we always look at total compensation first, we note that the salary component is less, at US$1.3m. Importantly, there may be performance hurdles relating to the non-salary component of the total compensation. We took a group of companies with market capitalizations over US$8.0b, and calculated the median CEO total compensation to be US$12m. (We took a wide range because the CEOs of massive companies tend to be paid similar amounts - even though some are quite a bit bigger than others).

Now let's take a look at the pay mix on an industry and company level to gain a better understanding of where Eaton stands. Speaking on an industry level, we can see that nearly 25% of total compensation represents salary, while the remainder of 75% is other remuneration. It's interesting to note that Eaton allocates a smaller portion of compensation to salary in comparison to the broader industry.

As you can see, Craig Arnold is paid more than the median CEO pay at large companies, in the same market. However, this does not necessarily mean Eaton Corporation plc is paying too much. A closer look at the performance of the underlying business will give us a better idea about whether the pay is particularly generous. The graphic below shows how CEO compensation at Eaton has changed from year to year.

NYSE:ETN CEO Compensation April 13th 2020
NYSE:ETN CEO Compensation April 13th 2020

Is Eaton Corporation plc Growing?

On average over the last three years, Eaton Corporation plc has seen earnings per share (EPS) move in a favourable direction by 2.7% each year (using a line of best fit). Its revenue is down 1.0% over last year.

I would prefer it if there was revenue growth, but the improvement in EPS is good. In conclusion we can't form a strong opinion about business performance yet; but it's one worth watching. It could be important to check this free visual depiction of what analysts expect for the future.

Has Eaton Corporation plc Been A Good Investment?

Eaton Corporation plc has served shareholders reasonably well, with a total return of 21% over three years. But they would probably prefer not to see CEO compensation far in excess of the median.

In Summary...

We examined the amount Eaton Corporation plc pays its CEO, and compared it to the amount paid by other large companies. Our data suggests that it pays above the median CEO pay within that group.

One might like to have seen stronger growth, and the shareholder returns have failed to inspire, over the last three years. Considering this, we wouldn't want to see any big pay rises, although we'd stop short of calling the CEO compensation unfair. Looking into other areas, we've picked out 3 warning signs for Eaton that investors should think about before committing capital to this stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.

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. Thank you for reading.