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Heath Sharp became the CEO of Reliance Worldwide Corporation Limited (ASX:RWC) in 2015, and we think it's a good time to look at the executive's compensation against the backdrop of overall company performance. This analysis will also assess whether Reliance Worldwide pays its CEO appropriately, considering recent earnings growth and total shareholder returns.
Comparing Reliance Worldwide Corporation Limited's CEO Compensation With the industry
At the time of writing, our data shows that Reliance Worldwide Corporation Limited has a market capitalization of AU$3.4b, and reported total annual CEO compensation of AU$3.4m for the year to June 2020. We note that's an increase of 13% above last year. We note that the salary portion, which stands at AU$1.93m constitutes the majority of total compensation received by the CEO.
In comparison with other companies in the industry with market capitalizations ranging from AU$2.6b to AU$8.5b, the reported median CEO total compensation was AU$3.8m. So it looks like Reliance Worldwide compensates Heath Sharp in line with the median for the industry. Moreover, Heath Sharp also holds AU$5.7m worth of Reliance Worldwide stock directly under their own name, which reveals to us that they have a significant personal stake in the company.
On an industry level, around 63% of total compensation represents salary and 37% is other remuneration. There isn't a significant difference between Reliance Worldwide and the broader market, in terms of salary allocation in the overall compensation package. If salary dominates total compensation, it suggests that CEO compensation is leaning less towards the variable component, which is usually linked with performance.
A Look at Reliance Worldwide Corporation Limited's Growth Numbers
Over the last three years, Reliance Worldwide Corporation Limited has shrunk its earnings per share by 3.0% per year. It achieved revenue growth of 5.3% over the last year.
Its a bit disappointing to see that the company has failed to grow its EPS. The modest increase in revenue in the last year isn't enough to make us overlook the disappointing change in EPS. So given this relatively weak performance, shareholders would probably not want to see high compensation for the CEO. Historical performance can sometimes be a good indicator on what's coming up next but if you want to peer into the company's future you might be interested in this free visualization of analyst forecasts.
Has Reliance Worldwide Corporation Limited Been A Good Investment?
Reliance Worldwide Corporation Limited has generated a total shareholder return of 24% over three years, so most shareholders would be reasonably content. But they probably don't want to see the CEO paid more than is normal for companies around the same size.
As previously discussed, Heath is compensated close to the median for companies of its size, and which belong to the same industry. Reliance Worldwide has had a poor showing when it comes to EPS growth, and it's tough to say that shareholder returns have done much to excite us. These figures do not go well against CEO compensation, which is more or less equal to the industry median. We wouldn't go as far as saying CEO compensation is inappropriate, but we don't think the executive is underpaid.
CEO compensation is a crucial aspect to keep your eyes on but investors also need to keep their eyes open for other issues related to business performance. That's why we did some digging and identified 1 warning sign for Reliance Worldwide that investors should think about before committing capital to this stock.
Switching gears from Reliance Worldwide, if you're hunting for a pristine balance sheet and premium returns, this free list of high return, low debt companies is a great place to look.
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.
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