Should You Worry About Quanta Services Inc’s (NYSE:PWR) CEO Pay Check?
Duke Austin took the reins as CEO of Quanta Services Inc’s (NYSE:PWR) and grew market cap to US$5.07b recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. Today we will assess Austin’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 Quanta Services
What has PWR’s performance been like?
Profitability of a company is a strong indication of PWR’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Austin’s performance. Most recently, PWR released an earnings of US$314.85m , which is an increase of 15.01% from its previous year’s earnings of US$273.77m. This is an encouraging signal that PWR aims to sustain a strong track record of generating profits regardless of the challenges. Since earnings are heading towards the right direction, CEO pay should echo Austin’s valued-adding activities. In the same year, Austin’s total compensation rose by 36.05% to US$8.74m. Moreover, Austin’s pay is also made up of 61.05% non-cash elements, which means that variabilities in PWR’s share price can move the true level of what the CEO actually receives.
Is PWR overpaying the CEO?
Though there is no cookie-cutter approach, as compensation should be tailored to the specific company and market, we can evaluate a high-level benchmark to see if PWR is an outlier. This exercise can help direct shareholders to ask the right question about Austin’s incentive alignment. Normally, a US mid-cap has a value of $5B, generates earnings of $290M and remunerates its CEO at roughly $5.3M annually. Considering PWR’s size and performance, in terms of market cap and earnings, it seems that Austin is paid above other US CEOs of profitable mid-caps. Even though this is simply a basic estimate, shareholders should be cognizant of this expense.
What this means for you:
PWR may be paying its CEO above-market rates due to many reasons – retention, reward, or inflated non-cash components of total pay. However, shareholders also should be aware of what the appropriate level is. Boards should be transparent with how they structure CEO pay given that there should be nothing to hide in public companies. Hopefully this analysis has given you the basis for questioning the next CEO pay raise. If you have not done so already, I urge you to complete your research by taking a look at the following:
Governance: To find out more about PWR’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 PWR? 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 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 editorial-team@simplywallst.com.
