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What We Learned About Southwest Airlines' (NYSE:LUV) CEO Compensation

Simply Wall St
·3 mins read

This article will reflect on the compensation paid to Gary Kelly who has served as CEO of Southwest Airlines Co. (NYSE:LUV) since 2004. This analysis will also evaluate the appropriateness of CEO compensation when taking into account the earnings and shareholder returns of the company.

View our latest analysis for Southwest Airlines

How Does Total Compensation For Gary Kelly Compare With Other Companies In The Industry?

According to our data, Southwest Airlines Co. has a market capitalization of US$23b, and paid its CEO total annual compensation worth US$8.8m over the year to December 2019. Notably, that's an increase of 14% over the year before. We think total compensation is more important but our data shows that the CEO salary is lower, at US$750k.

For comparison, other companies in the industry with market capitalizations above US$8.0b, reported a median total CEO compensation of US$13m. This suggests that Gary Kelly is paid below the industry median. What's more, Gary Kelly holds US$26m worth of shares in the company in their own name, indicating that they have a lot of skin in the game.

Component

2019

2018

Proportion (2019)

Salary

US$750k

US$750k

9%

Other

US$8.0m

US$7.0m

91%

Total Compensation

US$8.8m

US$7.7m

100%

On an industry level, around 14% of total compensation represents salary and 86% is other remuneration. It's interesting to note that Southwest Airlines allocates a smaller portion of compensation to salary in comparison to the broader industry. If non-salary compensation dominates total pay, it's an indicator that the executive's salary is tied to company performance.

ceo-compensation
ceo-compensation

Southwest Airlines Co.'s Growth

Over the last three years, Southwest Airlines Co. has shrunk its earnings per share by 55% per year. Its revenue is down 26% over the previous year.

The decline in EPS is a bit concerning. And the impression is worse when you consider revenue is down year-on-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 Southwest Airlines Co. Been A Good Investment?

With a three year total loss of 32% for the shareholders, Southwest Airlines Co. would certainly have some dissatisfied shareholders. This suggests it would be unwise for the company to pay the CEO too generously.

In Summary...

As we noted earlier, Southwest Airlines pays its CEO lower than the norm for similar-sized companies belonging to the same industry. Over the last three years, shareholder returns have been downright disappointing, and EPSgrowth has been equally disappointing. It's tough to say that Gary is earning a very high compensation, but shareholders will likely want to see healthier investor returns before agreeing that a raise is in order.

While CEO pay is an important factor to be aware of, there are other areas that investors should be mindful of as well. That's why we did some digging and identified 4 warning signs for Southwest Airlines that you should be aware of before investing.

Important note: Southwest Airlines is an exciting stock, but we understand investors may be looking for an unencumbered balance sheet and blockbuster returns. You might find something better in this list of interesting companies with high ROE and low debt.

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.