Is Harsco Corporation (NYSE:HSC) Overpaying Its CEO?
Nick Grasberger is the CEO of Harsco Corporation (NYSE:HSC), which has recently grown to a market capitalization of US$2.05b. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. Today we will assess Grasberger’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.
Check out our latest analysis for Harsco
What has been the trend in HSC’s earnings?
Profitability of a company is a strong indication of HSC’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Grasberger’s performance. In the past year, HSC produced an earnings of US$37.90m , moving HSC from negative territory of -US$19.89m in the prior year to profitability. This could signal a turnaround given that HSC has been loss-making for the past five years, on average, with an EPS of -US$1.05. As profits are moving up and up, CEO pay should be reflective of Grasberger’s valued-adding activities. Over the same period Grasberger’s total remuneration rose by 31.61% to US$5.33m. Moreover, Grasberger’s pay is also made up of 50.18% non-cash elements, which means that variabilities in HSC’s share price can impact the true level of what the CEO actually receives.
What’s a reasonable CEO compensation?
Despite the fact that one size does not fit all, since compensation should be tailored to the specific company and market, we can determine a high-level base line to see if HSC is an outlier. This outcome can help shareholders ask the right question about Grasberger’s incentive alignment. Generally, a US mid-cap is worth around $5B, produces earnings of $290M and remunerates its CEO circa $5.3M per annum. Based on HSC’s size and performance, in terms of market cap and earnings, it seems that Grasberger is remunerated more than the average US mid-cap CEO. Though this is merely a high-level calculation, investors should be cognizant of this expense.
What this means for you:
CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Why is Grasberger remuneration above that of similar companies? 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 highly recommend you to complete your research by taking a look at the following:
Governance: To find out more about HSC’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 HSC? 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.
