Yahoo Movies Is Walmart Inc’s (NYSE:WMT) CEO Pay Justified?
Leading Walmart Inc (NYSE:WMT) as the CEO, Doug McMillon took the company to a valuation of US$264.40b. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. I will break down McMillon’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. View our latest analysis for Walmart
Did McMillon create value?
Profitability of a company is a strong indication of WMT’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for McMillon’s performance. In the past year, WMT delivered an earnings of US$8.96b , which is a rather significant decline from its prior year’s profit (excluding extraordinary items) of US$13.60b. However, WMT has strived to maintain a good track record of profitability, given its average EPS of US$4.59 over the past couple of years. In the situation of abating earnings, the company may be facing a period of reinvestment and growth, or it can be an indication of some headwind. Regardless, CEO compensation should be reflective of the current state of the business. In the most recent financial statments, McMillon’s total compensation grew by a mere 1.97% to US$22.79m. In addition to this, McMillon’s pay is also made up of 71.54% non-cash elements, which means that variabilities in WMT’s share price can move the true level of what the CEO actually collects at the end of the year.
Is WMT’s CEO overpaid relative to the market?
Though no standard benchmark exists, since remuneration should be tailored to the specific company and market, we can estimate a high-level thresold to see if WMT is an outlier. This exercise helps investors ask the right question about McMillon’s incentive alignment. Typically, a US large-cap has a value of $64.9B, generates earnings of $3.6B and pays its CEO at roughly $12.2M annually. Allowing for the size of WMT in terms of market cap, as well as its performance, using earnings as a proxy, it seems that McMillon is paid in-line with the average US large-cap CEO. This may mean that WMT is appropriately compensating its CEO.
Next Steps:
Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in WMT, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. 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 WMT’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 WMT? 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.
