Tony Thomas is the CEO of Windstream Holdings Inc (NASDAQ:WIN), which has recently grown to a market capitalization of US$240.23M. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. I will break down Thomas’s pay and compare this to the company’s performance over the same period, as well as measure it against other US CEOs leading companies of similar size and profitability. See our latest analysis for Windstream Holdings
What has WIN’s performance been like?
Earnings is a powerful indication of WIN’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Thomas’s performance in the past year. In the past year, WIN released negative earnings of -US$2.13B , which is a further decline from prior year’s loss of -US$265.50M. Moreover, on average, WIN has been loss-making in the past, with a 5-year average EPS of -US$3.22. During times of unprofitability the company may be incurring a period of reinvestment and growth, or it can be a signal of some headwind. Regardless, CEO compensation should represent the current condition of the business. From the latest financial report, Thomas’s total compensation rose by 23.22% to US$5.43M. Furthermore, Thomas’s pay is also made up of 13.05% non-cash elements, which means that variabilities in WIN’s share price can impact the true level of what the CEO actually collects at the end of the year.
Is WIN’s CEO overpaid relative to the market?
While no standard benchmark exists, as compensation should be tailored to the specific company and market, we can fashion a high-level base line to see if WIN is an outlier. This outcome can help shareholders ask the right question about Thomas’s incentive alignment. On average, a US small-cap is worth around $1B, generates earnings of $96M, and remunerates its CEO circa $2.7M per annum. Typically I would use earnings and market cap to account for variations in performance, however, WIN’s negative earnings lower the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Thomas’s pay outstrips those in comparable companies.
What this means for you:
CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Why is Thomas remuneration above that of similar companies? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
- Governance: To find out more about WIN’s governance, look through our infographic report of the company’s board and management.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of WIN? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass 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.