This article will reflect on the compensation paid to Robert Freeman who has served as CEO of Australian Foundation Investment Company Limited (ASX:AFI) since 2018. This analysis will also look to assess whether the CEO is appropriately paid, considering recent earnings growth and investor returns for Australian Foundation Investment.
How Does Total Compensation For Robert Freeman Compare With Other Companies In The Industry?
At the time of writing, our data shows that Australian Foundation Investment Company Limited has a market capitalization of AU$7.9b, and reported total annual CEO compensation of AU$1.1m for the year to June 2020. That's mostly flat as compared to the prior year's compensation. In particular, the salary of AU$842.0k, makes up a huge portion of the total compensation being paid to the CEO.
On examining similar-sized companies in the industry with market capitalizations between AU$5.7b and AU$17b, we discovered that the median CEO total compensation of that group was AU$3.2m. That is to say, Robert Freeman is paid under the industry median. Moreover, Robert Freeman also holds AU$1.0m worth of Australian Foundation Investment stock directly under their own name.
On an industry level, roughly 67% of total compensation represents salary and 33% is other remuneration. Australian Foundation Investment is paying a higher share of its remuneration through a salary in comparison to the overall industry. If salary dominates total compensation, it suggests that CEO compensation is leaning less towards the variable component, which is usually linked with performance.
A Look at Australian Foundation Investment Company Limited's Growth Numbers
Over the last three years, Australian Foundation Investment Company Limited has shrunk its earnings per share by 2.3% per year. Its revenue is down 40% over the previous year.
Its a bit disappointing to see that the company has failed to grow its EPS. And the fact that revenue is down year on year arguably paints an ugly picture. These factors suggest that the business performance wouldn't really justify a high pay packet for the CEO. Although we don't have analyst forecasts, you might want to assess this data-rich visualization of earnings, revenue and cash flow.
Has Australian Foundation Investment Company Limited Been A Good Investment?
With a total shareholder return of 23% over three years, Australian Foundation Investment Company Limited shareholders would, in general, be reasonably content. But they probably wouldn't be so happy as to think the CEO should be paid more than is normal, for companies around this size.
As previously discussed, Robert is compensated less than what is normal for CEOs of companies of similar size, and which belong to the same industry. While we have not been overly impressed by shareholder returns, EPS growth has been negative over the last three years, a real headache for the company. We can't categorize CEO compensation as high, but shareholders might object to a raise at this stage, considering overall poor performance.
While CEO pay is an important factor to be aware of, there are other areas that investors should be mindful of as well. That's why we did some digging and identified 1 warning sign for Australian Foundation Investment that investors should think about before committing capital to this stock.
Of course, you might find a fantastic investment by looking at a different set of stocks. So take a peek at this free list of interesting companies.
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.
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