Frederick Smith is the CEO of FedEx Corporation (NYSE:FDX), which has recently grown to a market capitalization of US$66.03B. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. I will break down Smith’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 FedEx
What has FDX’s performance been like?
Earnings is a powerful indication of FDX’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Smith’s performance in the past year. Most recently, FDX released an earnings of US$4.46B , which is an increase of 134.24% from its last year’s earnings of US$1.90B. This is an encouraging signal that FDX aims to sustain a strong track record of generating profits regardless of the challenges. Since earnings are heading towards the right direction, CEO pay should echo Smith’s value creation for shareholders. Over the same period Smith’s total remuneration fell by -6.87%, to US$15.61M. Moreover, Smith’s pay is also made up of 33.48% non-cash elements, which means that fluctuations in FDX’s share price can impact the real level of what the CEO actually collects at the end of the year.
Is FDX overpaying the CEO?
Despite the fact that there is no cookie-cutter approach, since remuneration should account for specific factors of the company and market, we can estimate a high-level yardstick to see if FDX is an outlier. This outcome can help direct shareholders to ask the right question about Smith’s incentive alignment. Typically, a US large-cap is worth around $64.9B, produces earnings of $3.6B and pays its CEO at roughly $12.2M annually. Allowing for FDX’s size and performance, in terms of market cap and earnings, it seems that Smith is paid in-line with other comparable US CEOs of profitable large-caps. This may mean that FDX is appropriately compensating its CEO.
CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Is Smith remunerated appropriately based on other factors we have not covered today? 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 urge you to complete your research by taking a look at the following:
- Governance: To find out more about FDX’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 FDX? 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 pass 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.