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Ken Frazier became the CEO of Merck & Co., Inc. (NYSE:MRK) in 2011. First, this article will compare CEO compensation with compensation at other large companies. 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.
How Does Ken Frazier's Compensation Compare With Similar Sized Companies?
Our data indicates that Merck & Co., Inc. is worth US$198b, and total annual CEO compensation is US$21m. (This number is for the twelve months until December 2018). Notably, that's an increase of 19% over the year before. While we always look at total compensation first, we note that the salary component is less, at US$1.6m. When we examined a group of companies with market caps over US$8.0b, we found that their median CEO total compensation was US$11m. (We took a wide range because the CEOs of massive companies tend to be paid similar amounts - even though some are quite a bit bigger than others).
As you can see, Ken Frazier is paid more than the median CEO pay at large companies, in the same market. However, this does not necessarily mean Merck & Co., Inc. is paying too much. We can get a better idea of how generous the pay is by looking at the performance of the underlying business.
The graphic below shows how CEO compensation at Merck has changed from year to year.
Is Merck & Co., Inc. Growing?
On average over the last three years, Merck & Co., Inc. has shrunk earnings per share by 13% each year (measured with a line of best fit). It achieved revenue growth of 5.4% over the last year.
Sadly for shareholders, earnings per share are actually down, over three years. The modest increase in revenue in the last year isn't enough to make me overlook the disappointing change in earnings per share. These factors suggest that the business performance wouldn't really justify a high pay packet for the CEO. You might want to check this free visual report on analyst forecasts for future earnings.
Has Merck & Co., Inc. Been A Good Investment?
I think that the total shareholder return of 52%, over three years, would leave most Merck & Co., Inc. shareholders smiling. 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.
We compared total CEO remuneration at Merck & Co., Inc. with the amount paid at other large companies. As discussed above, we discovered that the company pays more than the median of that group.
Neither earnings per share nor revenue have been growing sufficiently fast to impress us, over the last three years.
But clearly there are some positives, because investors have done well over the same time frame. So on this analysis we'd stop short of criticizing the level of CEO compensation. CEO compensation is one thing, but it is also interesting to check if the CEO is buying or selling Merck (free visualization of insider trades).
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.
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 firstname.lastname@example.org. 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.