Yahoo Finance Is CVS Health Corporation's (NYSE:CVS) CEO Salary Justified?
Larry Merlo has been the CEO of CVS Health Corporation (NYSE:CVS) since 2011. First, this article will compare CEO compensation with compensation at other large companies. Then we'll look at a snap shot of the business growth. 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.
Check out our latest analysis for CVS Health
How Does Larry Merlo's Compensation Compare With Similar Sized Companies?
Our data indicates that CVS Health Corporation is worth US$71b, and total annual CEO compensation was reported as US$22m for the year to December 2018. While this analysis focuses on total compensation, it's worth noting the salary is lower, valued at US$1.6m. We note that more than half of the total compensation is not the salary; and performance requirements may apply to this non-salary portion. We took a group of companies with market capitalizations over US$8.0b, and calculated the median CEO total compensation to be US$12m. There aren't very many mega-cap companies, so we had to take a wide range to get a meaningful comparison figure.
Now let's take a look at the pay mix on an industry and company level to gain a better understanding of where CVS Health stands. Talking in terms of the sector, salary represented approximately 20% of total compensation out of all the companies we analysed, while other remuneration made up 80% of the pie. Readers will want to know that CVS Health pays a modest slice of remuneration through salary, as compared to the wider sector.
It would therefore appear that CVS Health Corporation pays Larry Merlo more than the median CEO remuneration at large companies, in the same market. However, this fact alone doesn't mean the remuneration is too high. 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 CVS Health has changed from year to year.
Is CVS Health Corporation Growing?
On average over the last three years, CVS Health Corporation has shrunk earnings per share by 24% each year (measured with a line of best fit). It achieved revenue growth of 32% over the last year.
The reduction in earnings per share, over three years, is arguably concerning. But in contrast the revenue growth is strong, suggesting future potential for earnings growth. These two metric are moving in different directions, so while it's hard to be confident judging performance, we think the stock is worth watching. Shareholders might be interested in this free visualization of analyst forecasts.
Has CVS Health Corporation Been A Good Investment?
Given the total loss of 24% over three years, many shareholders in CVS Health Corporation are probably rather dissatisfied, to say the least. This suggests it would be unwise for the company to pay the CEO too generously.
In Summary...
We compared the total CEO remuneration paid by CVS Health Corporation, and compared it to remuneration at a group of other large companies. Our data suggests that it pays above the median CEO pay within that group.
Over the last three years, shareholder returns have been downright disappointing, and the underlying business has failed to impress us. Considering this, we have the opinion that the CEO pay is more on the generous side, than the modest side. Shifting gears from CEO pay for a second, we've spotted 3 warning signs for CVS Health you should be aware of, and 1 of them makes us a bit uncomfortable.
Important note: CVS Health may not be the best stock to buy. You might find something better in this list of interesting companies with high ROE and low debt.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
