Tom Linebarger has been the CEO of Cummins Inc. (NYSE:CMI) since 2012. This analysis aims first to contrast CEO compensation with other large companies. Next, we’ll consider growth that the business demonstrates. And finally – as a second measure of performance – we will look at the returns shareholders have received over the last few years. This process should give us an idea about how appropriately the CEO is paid.
How Does Tom Linebarger’s Compensation Compare With Similar Sized Companies?
At the time of writing our data says that Cummins Inc. has a market cap of US$22b, and is paying total annual CEO compensation of US$16m. (This number is for the twelve months until 2017). While we always look at total compensation first, we note that the salary component is less, at US$1.4m. When we examined a group of companies with market caps over US$8.0b, we found that their median CEO compensation was US$11m. There aren’t very many mega-cap companies, so we had to take a wide range to get a meaningful comparison figure.
It would therefore appear that Cummins Inc. pays Tom Linebarger 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. A closer look at the performance of the underlying business will give us a better idea about whether the pay is particularly generous.
The graphic below shows how CEO compensation at Cummins has changed from year to year.
Is Cummins Inc. Growing?
Cummins Inc. has reduced its earnings per share by an average of 6.2% a year, over the last three years. In the last year, its revenue is up 19%.
Few shareholders would be pleased to read that earnings per share are lower over three years. While the revenue growth is good to see, it is outweighed by the fact that earnings per share are down, over three years. So given this relatively weak performance, shareholders would probably not want to see high compensation for the CEO.
It could be important to check this free visual depiction of what analysts expect for the future.
Has Cummins Inc. Been A Good Investment?
Boasting a total shareholder return of 71% over three years, Cummins Inc. has done well by shareholders. As a result, some may believe the CEO should be paid more than is normal for companies of similar size.
We compared total CEO remuneration at Cummins Inc. with the amount paid at other large companies. We found that it pays well over the median amount paid in the benchmark group.
Earnings per share have not grown in three years, and the revenue growth fails to impress us.
On the other hand, returns have been good, so the company is doing something right. Given this situation we doubt shareholders are particularly concerned about the CEO compensation. So you may want to check if insiders are buying Cummins shares with their own money (free access).
Or you might prefer gaze upon this detailed graph of past earnings, revenue and cash flow .
To help readers see past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.