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Is TransAlta Corporation's (TSE:TA) CEO Overpaid Relative To Its Peers?

Simply Wall St

Dawn Farrell became the CEO of TransAlta Corporation (TSE:TA) in 2012. This analysis aims first to contrast CEO compensation with other companies that have similar market capitalization. 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. The aim of all this is to consider the appropriateness of CEO pay levels.

See our latest analysis for TransAlta

How Does Dawn Farrell's Compensation Compare With Similar Sized Companies?

At the time of writing, our data says that TransAlta Corporation has a market cap of CA$2.8b, and reported total annual CEO compensation of CA$6.2m for the year to December 2018. While we always look at total compensation first, we note that the salary component is less, at CA$1.0m. We note that more than half of the total compensation is not the salary; and performance requirements may apply to this non-salary portion. When we examined a selection of companies with market caps ranging from CA$1.3b to CA$4.3b, we found the median CEO total compensation was CA$2.9m.

Thus we can conclude that Dawn Farrell receives more in total compensation than the median of a group of companies in the same market, and of similar size to TransAlta Corporation. However, this doesn't necessarily mean the pay is too high. We can get a better idea of how generous the pay is by looking at the performance of the underlying business.

You can see a visual representation of the CEO compensation at TransAlta, below.

TSX:TA CEO Compensation, February 7th 2020

Is TransAlta Corporation Growing?

On average over the last three years, TransAlta Corporation has shrunk earnings per share by 85% each year (measured with a line of best fit). In the last year, its revenue is up 4.2%.

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 TransAlta Corporation Been A Good Investment?

I think that the total shareholder return of 37%, over three years, would leave most TransAlta Corporation shareholders smiling. As a result, some may believe the CEO should be paid more than is normal for companies of similar size.

In Summary...

We compared the total CEO remuneration paid by TransAlta Corporation, and compared it to remuneration at a group of similar sized companies. As discussed above, we discovered that the company pays more than the median of that group.

We think many shareholders would be underwhelmed with the business growth over the last three years. 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 TransAlta shares with their own money (free access).

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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.

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