The anaemic share price growth at Archrock, Inc. (NYSE:AROC) over the past few years has probably not impressed shareholders and may be due to earnings not growing over that period. The upcoming AGM on 28 April 2021 may be an opportunity for shareholders to bring up any concerns they may have for the board’s attention. They will be able to influence managerial decisions through the exercise of their voting power on resolutions, such as CEO remuneration and other matters, which may influence future company prospects. From what we gathered, we think shareholders should be wary of raising CEO compensation until the company shows some marked improvement.
Comparing Archrock, Inc.'s CEO Compensation With the industry
Our data indicates that Archrock, Inc. has a market capitalization of US$1.4b, and total annual CEO compensation was reported as US$6.1m for the year to December 2020. That's mostly flat as compared to the prior year's compensation. While we always look at total compensation first, our analysis shows that the salary component is less, at US$782k.
On comparing similar companies from the same industry with market caps ranging from US$1.0b to US$3.2b, we found that the median CEO total compensation was US$4.0m. Hence, we can conclude that Brad Childers is remunerated higher than the industry median. Furthermore, Brad Childers directly owns US$15m worth of shares in the company, implying that they are deeply invested in the company's success.
| Component | 2020 | 2019 | Proportion (2020) |
| Salary | US$782k | US$862k | 13% |
| Other | US$5.3m | US$5.3m | 87% |
| Total Compensation | US$6.1m | US$6.2m | 100% |
On an industry level, roughly 23% of total compensation represents salary and 77% is other remuneration. In Archrock's case, non-salary compensation represents a greater slice of total remuneration, in comparison to the broader industry. If non-salary compensation dominates total pay, it's an indicator that the executive's salary is tied to company performance.
Archrock, Inc.'s Growth
Archrock, Inc. has reduced its earnings per share by 60% a year over the last three years. It saw its revenue drop 9.4% over the last year.
Few shareholders would be pleased to read that EPS have declined. This is compounded by the fact revenue is actually down on last year. These factors suggest that the business performance wouldn't really justify a high pay packet 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 Archrock, Inc. Been A Good Investment?
Archrock, Inc. has generated a total shareholder return of 3.9% over three years, so most shareholders wouldn't be too disappointed. Although, there's always room to improve. Accordingly, a proposal to increase CEO remuneration without seeing an improvement in shareholder returns might not be met favorably by most shareholders.
To Conclude...
While it's true that the share price growth hasn't been bad, it's hard to overlook the lack of earnings growth and this makes us question whether there will be any strong catalyst for the stock to improve. In the upcoming AGM, shareholders will get the opportunity to discuss any concerns with the board, including those related to CEO remuneration and assess if the board's plan will likely improve performance in the future.
While CEO pay is an important factor to be aware of, there are other areas that investors should be mindful of as well. We've identified 2 warning signs for Archrock that investors should be aware of in a dynamic business environment.
Important note: Archrock is an exciting stock, but we understand investors may be looking for an unencumbered balance sheet and blockbuster returns. You might find something better in this list of interesting companies with high ROE 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
