This Is The Reason Why We Think Wesfarmers Limited's (ASX:WES) CEO Might Be Underpaid

·3 min read

The impressive results at Wesfarmers Limited (ASX:WES) recently will be great news for shareholders. At the upcoming AGM on 21 October 2021, they will get a chance to hear the board review the company results, discuss future strategy and cast their vote on any resolutions such as executive remuneration. Let's take a look at why we think the CEO has done a good job and we'll present the case for a bump in pay.

Check out our latest analysis for Wesfarmers

How Does Total Compensation For Rob Scott Compare With Other Companies In The Industry?

At the time of writing, our data shows that Wesfarmers Limited has a market capitalization of AU$62b, and reported total annual CEO compensation of AU$6.9m for the year to June 2021. Notably, that's a decrease of 11% over the year before. While we always look at total compensation first, our analysis shows that the salary component is less, at AU$2.3m.

For comparison, other companies in the industry with market capitalizations above AU$11b, reported a median total CEO compensation of AU$11m. In other words, Wesfarmers pays its CEO lower than the industry median. What's more, Rob Scott holds AU$19m worth of shares in the company in their own name, indicating that they have a lot of skin in the game.

Component

2021

2020

Proportion (2021)

Salary

AU$2.3m

AU$2.3m

33%

Other

AU$4.6m

AU$5.4m

67%

Total Compensation

AU$6.9m

AU$7.8m

100%

On an industry level, roughly 49% of total compensation represents salary and 51% is other remuneration. Wesfarmers pays a modest slice of remuneration through salary, as compared to the broader industry. If non-salary compensation dominates total pay, it's an indicator that the executive's salary is tied to company performance.

ceo-compensation
ceo-compensation

Wesfarmers Limited's Growth

Over the past three years, Wesfarmers Limited has seen its earnings per share (EPS) grow by 19% per year. It achieved revenue growth of 10% over the last year.

This demonstrates that the company has been improving recently and is good news for the shareholders. It's a real positive to see this sort of revenue growth in a single year. That suggests a healthy and growing business. Historical performance can sometimes be a good indicator on what's coming up next but if you want to peer into the company's future you might be interested in this free visualization of analyst forecasts.

Has Wesfarmers Limited Been A Good Investment?

We think that the total shareholder return of 85%, over three years, would leave most Wesfarmers Limited 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.

To Conclude...

Given the company's decent performance, the CEO remuneration policy might not be shareholders' central point of focus in the AGM. However, investors will get the chance to engage on key strategic initiatives and future growth opportunities for the company and set their longer-term expectations.

While CEO pay is an important factor to be aware of, there are other areas that investors should be mindful of as well. We've identified 1 warning sign for Wesfarmers that investors should be aware of in a dynamic business environment.

Switching gears from Wesfarmers, if you're hunting for a pristine balance sheet and premium returns, this free list of high return, low debt companies is a great place to look.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

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