Shareholders may be wondering what CEO Jack Lynch plans to do to improve the less than great performance at Houghton Mifflin Harcourt Company (NASDAQ:HMHC) recently. One way they can exercise their influence on management is through voting on resolutions, such as executive remuneration at the next AGM, coming up on 14 May 2021. It has been shown that setting appropriate executive remuneration incentivises the management to act in the interests of shareholders. We have prepared some analysis below to show that CEO compensation looks to be reasonable.
Comparing Houghton Mifflin Harcourt Company's CEO Compensation With the industry
At the time of writing, our data shows that Houghton Mifflin Harcourt Company has a market capitalization of US$1.2b, and reported total annual CEO compensation of US$3.4m for the year to December 2020. That's a notable decrease of 28% on last year. We think total compensation is more important but our data shows that the CEO salary is lower, at US$796k.
For comparison, other companies in the same industry with market capitalizations ranging between US$1.0b and US$3.2b had a median total CEO compensation of US$5.0m. Accordingly, Houghton Mifflin Harcourt pays its CEO under the industry median. What's more, Jack Lynch holds US$4.0m worth of shares in the company in their own name, indicating that they have a lot of skin in the game.
Speaking on an industry level, nearly 19% of total compensation represents salary, while the remainder of 81% is other remuneration. Houghton Mifflin Harcourt is paying a higher share of its remuneration through a salary in comparison to the overall industry. If non-salary compensation dominates total pay, it's an indicator that the executive's salary is tied to company performance.
Houghton Mifflin Harcourt Company's Growth
Over the last three years, Houghton Mifflin Harcourt Company has shrunk its earnings per share by 63% per year. It saw its revenue drop 26% over the last year.
Overall this is not a very positive result for shareholders. This is compounded by the fact revenue is actually down on last year. It's hard to argue the company is firing on all cylinders, so shareholders might be averse to high CEO remuneration. Moving away from current form for a second, it could be important to check this free visual depiction of what analysts expect for the future.
Has Houghton Mifflin Harcourt Company Been A Good Investment?
We think that the total shareholder return of 44%, over three years, would leave most Houghton Mifflin Harcourt Company shareholders smiling. 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.
While the return to shareholders does look promising, it's hard to ignore the lack of earnings growth and this makes us wonder if these strong returns can continue. These concerns could be addressed to the board and shareholders should revisit their investment thesis to see if it still makes sense.
While CEO pay is an important factor to be aware of, there are other areas that investors should be mindful of as well. We did our research and spotted 3 warning signs for Houghton Mifflin Harcourt that investors should look into moving forward.
Arguably, business quality is much more important than CEO compensation levels. So check out this free list of interesting companies that have HIGH return on equity and low debt.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.