Is HomeServe plc (LON:HSV) Excessively Paying Its CEO?
Richard Harpin became the CEO of HomeServe plc (LON:HSV) in 2004. This report will, first, examine the CEO compensation levels in comparison to CEO compensation at companies of similar size. Next, we'll consider growth that the business demonstrates. Third, we'll reflect on the total return to shareholders over three years, as a second measure of business performance. This method should give us information to assess how appropriately the company pays the CEO.
See our latest analysis for HomeServe
How Does Richard Harpin's Compensation Compare With Similar Sized Companies?
At the time of writing, our data says that HomeServe plc has a market cap of UK£4.2b, and reported total annual CEO compensation of UK£4.7m for the year to March 2019. We think total compensation is more important but we note that the CEO salary is lower, at UK£574k. Importantly, there may be performance hurdles relating to the non-salary component of the total compensation. We looked at a group of companies with market capitalizations from UK£3.3b to UK£9.9b, and the median CEO total compensation was UK£2.8m.
Now let's take a look at the pay mix on an industry and company level to gain a better understanding of where HomeServe stands. On a sector level, around 60% of total compensation represents salary and 40% is other remuneration. It's interesting to note that HomeServe allocates a smaller portion of compensation to salary in comparison to the broader industry.
Thus we can conclude that Richard Harpin receives more in total compensation than the median of a group of companies in the same market, and of similar size to HomeServe plc. However, this doesn't necessarily mean the pay is too high. We can better assess whether the pay is overly generous by looking into the underlying business performance. You can see a visual representation of the CEO compensation at HomeServe, below.
Is HomeServe plc Growing?
On average over the last three years, HomeServe plc has seen earnings per share (EPS) move in a favourable direction by 11% each year (using a line of best fit). In the last year, its revenue is up 13%.
This shows that the company has improved itself over the last few years. Good news for shareholders. This sort of respectable year-on-year revenue growth is often seen at a healthy, growing business. You might want to check this free visual report on analyst forecasts for future earnings.
Has HomeServe plc Been A Good Investment?
Most shareholders would probably be pleased with HomeServe plc for providing a total return of 79% over three years. 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.
In Summary...
We examined the amount HomeServe plc pays its CEO, and compared it to the amount paid by similar sized companies. Our data suggests that it pays above the median CEO pay within that group.
However, the earnings per share growth over three years is certainly impressive. On top of that, in the same period, returns to shareholders have been great. So, considering this good performance, the CEO compensation may be quite appropriate. Moving away from CEO compensation for the moment, we've identified 2 warning signs for HomeServe that you should be aware of before investing.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.
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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. Thank you for reading.
