In 2017 John Donahoe was appointed CEO of ServiceNow, Inc. (NYSE:NOW). This report will, first, examine the CEO compensation levels in comparison to CEO compensation at other big 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 process should give us an idea about how appropriately the CEO is paid.
How Does John Donahoe's Compensation Compare With Similar Sized Companies?
According to our data, ServiceNow, Inc. has a market capitalization of US$49b, and paid its CEO total annual compensation worth US$17m over the year to December 2018. We think total compensation is more important but we note that the CEO salary is lower, at US$750k. Importantly, there may be performance hurdles relating to the non-salary component of the total compensation. 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).
It would therefore appear that ServiceNow, Inc. pays John Donahoe 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. We can better assess whether the pay is overly generous by looking into the underlying business performance.
You can see, below, how CEO compensation at ServiceNow has changed over time.
Is ServiceNow, Inc. Growing?
On average over the last three years, ServiceNow, Inc. has grown earnings per share (EPS) by 93% each year (using a line of best fit). In the last year, its revenue is up 33%.
Overall this is a positive result for shareholders, showing that the company has improved in recent years. The combination of strong revenue growth with medium-term earnings per share improvement certainly points to the kind of growth I like to see. Shareholders might be interested in this free visualization of analyst forecasts.
Has ServiceNow, Inc. Been A Good Investment?
Most shareholders would probably be pleased with ServiceNow, Inc. for providing a total return of 248% over three years. 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 ServiceNow, Inc. with the amount paid at other large companies. We found that it pays well over the median amount paid in the benchmark group.
Importantly, though, the company has impressed with its earnings per share growth, over three years. On top of that, in the same period, returns to shareholders have been great. So, considering this good performance, the CEO compensation may be quite appropriate. CEO compensation is one thing, but it is also interesting to check if the CEO is buying or selling ServiceNow (free visualization of insider trades).
Important note: ServiceNow may not be the best stock to buy. You might find something better in this list of interesting companies with high ROE and low debt.
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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.