Does Rolls-Royce Holdings' (LON:RR.) CEO Salary Compare Well With Industry Peers?

Simply Wall St
·3-min read

This article will reflect on the compensation paid to D. Warren East who has served as CEO of Rolls-Royce Holdings plc (LON:RR.) since 2015. This analysis will also assess whether Rolls-Royce Holdings pays its CEO appropriately, considering recent earnings growth and total shareholder returns.

View our latest analysis for Rolls-Royce Holdings

How Does Total Compensation For D. Warren East Compare With Other Companies In The Industry?

Our data indicates that Rolls-Royce Holdings plc has a market capitalization of UK£3.7b, and total annual CEO compensation was reported as UK£3.2m for the year to December 2019. That's a notable decrease of 22% on last year. While we always look at total compensation first, our analysis shows that the salary component is less, at UK£944k.

For comparison, other companies in the same industry with market capitalizations ranging between UK£3.1b and UK£9.2b had a median total CEO compensation of UK£4.0m. So it looks like Rolls-Royce Holdings compensates D. Warren East in line with the median for the industry. What's more, D. Warren East holds UK£708k worth of shares in the company in their own name.

Component

2019

2018

Proportion (2019)

Salary

UK£944k

UK£944k

30%

Other

UK£2.2m

UK£3.1m

70%

Total Compensation

UK£3.2m

UK£4.1m

100%

On an industry level, around 42% of total compensation represents salary and 58% is other remuneration. Rolls-Royce Holdings sets aside a smaller share of compensation for 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.

ceo-compensation
ceo-compensation

A Look at Rolls-Royce Holdings plc's Growth Numbers

Over the last three years, Rolls-Royce Holdings plc has shrunk its earnings per share by 89% per year. In the last year, its revenue is down 9.9%.

The decline in EPS is a bit concerning. And the impression is worse when you consider revenue is down year-on-year. So given this relatively weak performance, shareholders would probably not want to see high compensation for the CEO. 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 Rolls-Royce Holdings plc Been A Good Investment?

Since shareholders would have lost about 78% over three years, some Rolls-Royce Holdings plc investors would surely be feeling negative emotions. Therefore, it might be upsetting for shareholders if the CEO were paid generously.

In Summary...

As we noted earlier, Rolls-Royce Holdings pays its CEO in line with similar-sized companies belonging to the same industry. Meanwhile, EPS growth and shareholder returns have been in the red for the last three years. It's tough to call out the compensation as inappropriate, but shareholders might not favor a raise before company performance improves.

CEO compensation can have a massive impact on performance, but it's just one element. We did our research and spotted 1 warning sign for Rolls-Royce Holdings 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.

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