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How Should Investors Feel About Sunstone Hotel Investors' (NYSE:SHO) CEO Remuneration?

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This article will reflect on the compensation paid to John Arabia who has served as CEO of Sunstone Hotel Investors, Inc. (NYSE:SHO) since 2015. This analysis will also evaluate the appropriateness of CEO compensation when taking into account the funds from operations and shareholder returns of the company.

See our latest analysis for Sunstone Hotel Investors

How Does Total Compensation For John Arabia Compare With Other Companies In The Industry?

According to our data, Sunstone Hotel Investors, Inc. has a market capitalization of US$1.6b, and paid its CEO total annual compensation worth US$5.6m over the year to December 2019. Notably, that's an increase of 8.2% over the year before. We think total compensation is more important but our data shows that the CEO salary is lower, at US$808k.

For comparison, other companies in the same industry with market capitalizations ranging between US$1.0b and US$3.2b had a median total CEO compensation of US$4.6m. From this we gather that John Arabia is paid around the median for CEOs in the industry. Moreover, John Arabia also holds US$8.1m worth of Sunstone Hotel Investors stock directly under their own name, which reveals to us that they have a significant personal stake in the company.

Component

2019

2018

Proportion (2019)

Salary

US$808k

US$768k

15%

Other

US$4.8m

US$4.4m

85%

Total Compensation

US$5.6m

US$5.1m

100%

Speaking on an industry level, nearly 15% of total compensation represents salary, while the remainder of 85% is other remuneration. Although there is a difference in how total compensation is set, Sunstone Hotel Investors more or less reflects the market in terms of setting the salary. If total compensation is slanted towards non-salary benefits, it indicates that CEO pay is linked to company performance.

ceo-compensation
ceo-compensation

A Look at Sunstone Hotel Investors, Inc.'s Growth Numbers

Sunstone Hotel Investors, Inc. has reduced its funds from operations (FFO) by 48% per year over the last three years. In the last year, its revenue is down 33%.

The decline in FFO is a bit concerning. This is compounded by the fact revenue is actually down on last year. These factors suggest that the business performance wouldn't really justify a high pay packet for the CEO. Moving away from current form for a second, it could be important to check this free visual depiction of what analysts expect for the future.

Has Sunstone Hotel Investors, Inc. Been A Good Investment?

With a three year total loss of 46% for the shareholders, Sunstone Hotel Investors, Inc. would certainly have some dissatisfied shareholders. Therefore, it might be upsetting for shareholders if the CEO were paid generously.

In Summary...

As we touched on above, Sunstone Hotel Investors, Inc. is currently paying a compensation that's close to the median pay for CEOs of companies belonging to the same industry and with similar market capitalizations. On the other hand, FFO growth and total shareholder return have been negative for the last three years. We'd stop short of saying compensation is inappropriate, but we would understand if shareholders had questions regarding a future raise.

CEO compensation is an important area to keep your eyes on, but we've also need to pay attention to other attributes of the company. We identified 2 warning signs for Sunstone Hotel Investors (1 is significant!) that you should be aware of before investing here.

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

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.