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Is International Business Machines Corporation's (NYSE:IBM) CEO Being Overpaid?

Simply Wall St

Ginni Rometty has been the CEO of International Business Machines Corporation (NYSE:IBM) since 2012. 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. And finally we will reflect on how common stockholders have fared in the last few years, as a secondary measure of performance. This method should give us information to assess how appropriately the company pays the CEO.

Check out our latest analysis for International Business Machines

How Does Ginni Rometty's Compensation Compare With Similar Sized Companies?

At the time of writing, our data says that International Business Machines Corporation has a market cap of US$119b, and reported total annual CEO compensation of US$18m for the year to December 2018. While this analysis focuses on total compensation, it's worth noting the salary is lower, valued at US$1.6m. We further remind readers that the CEO may face performance requirements to receive the non-salary part of the total compensation. We looked at a group of companies with market capitalizations over US$8.0b and the median CEO total compensation was US$11m. Once you start looking at very large companies, you need to take a broader range, because there simply aren't that many of them.

It would therefore appear that International Business Machines Corporation pays Ginni Rometty more than the median CEO remuneration at large companies, in the same market. However, this fact alone doesn't mean the remuneration is too high. We can better assess whether the pay is overly generous by looking into the underlying business performance.

The graphic below shows how CEO compensation at International Business Machines has changed from year to year.

NYSE:IBM CEO Compensation, October 21st 2019

Is International Business Machines Corporation Growing?

Over the last three years International Business Machines Corporation has shrunk its earnings per share by an average of 15% per year (measured with a line of best fit). In the last year, its revenue is down 4.0%.

Unfortunately, earnings per share have trended lower over the last three years. This is compounded by the fact revenue is actually down on last year. It's hard to argue the company is firing on all cylinders, so shareholders might be averse to high CEO remuneration. Shareholders might be interested in this free visualization of analyst forecasts.

Has International Business Machines Corporation Been A Good Investment?

International Business Machines Corporation has generated a total shareholder return of 1.7% over three years, so most shareholders wouldn't be too disappointed. But they probably wouldn't be so happy as to think the CEO should be paid more than is normal, for companies around this size.

In Summary...

We examined the amount International Business Machines Corporation 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.

Earnings per share have not grown in three years, and the revenue growth fails to impress us. While shareholder returns are acceptable, they don't delight. So you may want to delve deeper, because we don't think the CEO pay is too low. Shareholders may want to check for free if International Business Machines insiders are buying or selling shares.

Arguably, business quality is much more important than CEO compensation levels. So check out this free list of interesting companies, that have HIGH return on equity 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 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. Thank you for reading.