Should You Worry About Premier Inc’s (NASDAQ:PINC) CEO Salary Level?

Leading Premier Inc (NASDAQ:PINC) as the CEO, Susan DeVore took the company to a valuation of US$4.93b.
Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock.
Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders.
I will break down
DeVore’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 out our latest analysis for Premier

What has been the trend in PINC’s earnings?

Earnings is a powerful indication of PINC’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of DeVore’s performance in the past year.
In the past year,
PINC
produced
a profit
of US$200.37m
, which is a rather significant decline from its prior year’s profit (excluding extraordinary items) of US$491.62m.
Given that PINC has been loss-making in the past, hopefully
a wane in profits isn’t a signal of a reverting trend.
During times of
abating earnings,
the company may be
incurring
a period of reinvestment and growth, or it can be
an indication
of some headwind.
In any case,
CEO compensation should
be reflective of
the current
condition
of the business.
In the most recent
financial report,
DeVore’s total
compensation
fell
by -6.12%, to US$6.21m.
In addition to this,
DeVore’s pay is also made up of 70.80% non-cash elements, which means that
fluctuations
in PINC’s share price can
affect
the
real
level of what the CEO actually
receives.


NasdaqGS:PINC Income Statement July 12th 18
NasdaqGS:PINC Income Statement July 12th 18

Is PINC’s CEO overpaid relative to the market?

Though
one size does not fit all,
since
remuneration
should account for specific factors of the
company and market,
we can
estimate
a high-level
yardstick
to see if PINC
deviates substantially from its peers.
This exercise
helps investors ask
the right question about DeVore’s incentive alignment.
On average,
a US mid-cap
has a value of
$5B,
generates
earnings of $290M and
pays
its CEO
circa
$5.3M
annually.
Based on
PINC’s size and performance, in terms of market cap and earnings,
it seems that
DeVore is
remunerated
above
other US CEOs of profitable mid-caps.
Even though
this is
only
a basic
calculation,
shareholders
should be
aware
of this expense.

What this means for you:

CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Why is DeVore remuneration above that of similar companies? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours.
If you have not done so already, I
highly recommend
you to complete your research by taking a look at the following:

  1. Governance: To find out more about PINC’s governance, look through our infographic report of the company’s board and management.
  2. 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.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of PINC? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

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This post was originally published here via Google News