Why Broadcom's (NASDAQ:AVGO) CEO Pay Matters

Simply Wall St
·3 min read

This article will reflect on the compensation paid to Hock Tan who has served as CEO of Broadcom Inc. (NASDAQ:AVGO) since 2006. This analysis will also assess whether Broadcom pays its CEO appropriately, considering recent earnings growth and total shareholder returns.

See our latest analysis for Broadcom

How Does Total Compensation For Hock Tan Compare With Other Companies In The Industry?

According to our data, Broadcom Inc. has a market capitalization of US$131b, and paid its CEO total annual compensation worth US$2.4m over the year to November 2019. That's a notable decrease of 53% on last year. While this analysis focuses on total compensation, it's worth acknowledging that the salary portion is lower, valued at US$1.1m.

On comparing similar companies in the industry with market capitalizations above US$8.0b, we found that the median total CEO compensation was US$11m. This suggests that Hock Tan is paid below the industry median. Moreover, Hock Tan also holds US$80m worth of Broadcom stock directly under their own name, which reveals to us that they have a significant personal stake in the company.

Component

2019

2018

Proportion (2019)

Salary

US$1.1m

US$1.1m

46%

Other

US$1.3m

US$3.9m

54%

Total Compensation

US$2.4m

US$5.0m

100%

On an industry level, roughly 14% of total compensation represents salary and 86% is other remuneration. According to our research, Broadcom has allocated a higher percentage of pay to salary in comparison to the wider industry. It's important to note that a slant towards non-salary compensation suggests that total pay is tied to the company's performance.

ceo-compensation
ceo-compensation

Broadcom Inc.'s Growth

Over the last three years, Broadcom Inc. has shrunk its earnings per share by 1.4% per year. Its revenue is up 5.0% over the last year.

The lack of earnings growth is certainly unimpressive. The modest increase in revenue in the last year isn't enough to make us overlook the disappointing change in earnings per share. It's hard to argue the company is firing on all cylinders, so shareholders might be averse to high CEO remuneration. 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 Broadcom Inc. Been A Good Investment?

Boasting a total shareholder return of 45% over three years, Broadcom Inc. has done well by shareholders. As a result, some may believe the CEO should be paid more than is normal for companies of similar size.

To Conclude...

As we noted earlier, Broadcom pays its CEO lower than the norm for similar-sized companies belonging to the same industry. And while earnings growth is negative, shareholder returns have been healthy recently. Although we'd like to see positive earnings growth, we'd argue the remuneration is modest, based on our observations.

CEO compensation is an important area to keep your eyes on, but we've also need to pay attention to other attributes of the company. That's why we did our research, and identified 4 warning signs for Broadcom (of which 1 makes us a bit uncomfortable!) that you should know about in order to have a holistic understanding of the stock.

Switching gears from Broadcom, if you're hunting for a pristine balance sheet and premium returns, this free list of high return, low debt companies is a great place to look.

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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