In 2015 Tad Smith was appointed CEO of Sotheby’s (NYSE:BID). First, this article will compare CEO compensation with compensation at similar sized companies. Next, we’ll consider growth that the business demonstrates. And finally – as a second measure of performance – we will look at the returns shareholders have received over the last few years. The aim of all this is to consider the appropriateness of CEO pay levels.
How Does Tad Smith’s Compensation Compare With Similar Sized Companies?
Our data indicates that Sotheby’s is worth US$2.0b, and total annual CEO compensation is US$8.2m. (This is based on the year to 2017). While we always look at total compensation first, we note that the salary component is less, at US$1.4m. When we examined a selection of companies with market caps ranging from US$1.0b to US$3.2b, we found the median CEO compensation was US$3.5m.
As you can see, Tad Smith is paid more than the median CEO pay at companies of a similar size, in the same market. However, this does not necessarily mean Sotheby’s is paying too much. A closer look at the performance of the underlying business will give us a better idea about whether the pay is particularly generous.
The graphic below shows how CEO compensation at Sotheby’s has changed from year to year.
Is Sotheby’s Growing?
On average over the last three years, Sotheby’s has grown earnings per share (EPS) by 39% each year. In the last year, its revenue is down -9.4%.
Overall this is a positive result for shareholders, showing that the company has improved in recent years. While it would be good to see revenue growth, profits matter more in the end.
You might want to check this free visual report on analyst forecasts for future earnings.
Has Sotheby’s Been A Good Investment?
Most shareholders would probably be pleased with Sotheby’s for providing a total return of 40% over three years. As a result, some may believe the CEO should be paid more than is normal for companies of similar size.
We compared total CEO remuneration at Sotheby’s with the amount paid at companies with a similar market capitalization. We found that it pays well over the median amount paid in the benchmark group.
However we must not forget that the EPS growth has been very strong over three years. In addition, shareholders have done well over the same time period. As a result of this good performance, the CEO remuneration may well be quite reasonable. Shareholders may want to check for free if Sotheby’s insiders are buying or selling shares.
Or you might rather take a peek at this analytical visualization of historic cash flow, earnings and revenue.
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 email@example.com.