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This article will reflect on the compensation paid to Tom Linebarger who has served as CEO of Cummins Inc. (NYSE:CMI) since 2012. This analysis will also look to assess whether the CEO is appropriately paid, considering recent earnings growth and investor returns for Cummins.
Check out our latest analysis for Cummins
How Does Total Compensation For Tom Linebarger Compare With Other Companies In The Industry?
Our data indicates that Cummins Inc. has a market capitalization of US$33b, and total annual CEO compensation was reported as US$25m for the year to December 2019. Notably, that's an increase of 45% over the year before. While this analysis focuses on total compensation, it's worth acknowledging that the salary portion is lower, valued at US$1.5m.
In comparison with other companies in the industry with market capitalizations over US$8.0b , the reported median total CEO compensation was US$7.6m. This suggests that Tom Linebarger is paid more than the median for the industry. Moreover, Tom Linebarger also holds US$36m worth of Cummins 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$1.5m | US$1.4m | 6% |
| Other | US$24m | US$16m | 94% |
| Total Compensation | US$25m | US$17m | 100% |
Talking in terms of the industry, salary represented approximately 17% of total compensation out of all the companies we analyzed, while other remuneration made up 83% of the pie. Cummins pays a modest slice of remuneration through salary, as compared to the broader industry. It's important to note that a slant towards non-salary compensation suggests that total pay is tied to the company's performance.
A Look at Cummins Inc.'s Growth Numbers
Cummins Inc.'s earnings per share (EPS) grew 2.6% per year over the last three years. Its revenue is down 19% over the previous year.
We would prefer it if there was revenue growth, but the modest EPSgrowth gives us some relief. These two metrics are moving in different directions, so while it's hard to be confident judging performance, we think the stock is worth watching. Looking ahead, you might want to check this free visual report on analyst forecasts for the company's future earnings..
Has Cummins Inc. Been A Good Investment?
Most shareholders would probably be pleased with Cummins Inc. for providing a total return of 37% over three years. So they may not be at all concerned if the CEO were to be paid more than is normal for companies around the same size.
To Conclude...
As previously discussed, Tom is compensated more than what is normal for CEOs of companies of similar size, and which belong to the same industry. But shareholder returns have been positive for the last three years. Albeit, EPS growth has not been as impressive over the same time frame. So, although we would've liked to see stronger EPS growth, positive investor returns lead us to believe CEO compensation is reasonable.