Companies using ROIC in their executive remuneration

[Okonomen]

Hi all,

 

I am very convinced that companies using ROIC in their remuneration packages to execs outperform those that do not in the long run. However, afaik there's not screening tools or anything to search for companies using ROIC as performance measure, thus making it a long and boring task to run through numerous remuenration reports etc.

 

Does anyone know of a list of companies using ROIC as performance measure? Or do you have other suggestions that could help me?

 

Thanks! : -)

[crastogi]

That would be a nice list :)

[Okonomen]

Indeed, but doesn't seem like anyone can help. It's interesting that there exists so many screening tools on financials etc but when it comes to management compensation - which I think is as important as the business model and financials - no screening tools exist :(

[scorpioncapital]

I guess you'd need a service that scans DEF14's and find the common format 'ROIC>x' tag or something.

I don't know if there are such services, maybe like this? https://www.scansource.com/en/investors/financial-information/proxy-statements

 

 

[Broeb22]

I know that Colgate-Palmolive includes ROIC in their metrics.

[Cigarbutt]

^It seems like the most natural thing to do is to find a good business at a good price and then to assess if the executive suite is aligned but I can see the rationale because executive compensation is an important variable to look at.

In my limited experience, almost all compensation packages do not take into account meaningful long-term return measures into their 'long-term' incentive plans.

For instance, my understanding of the Colgate-Palmolive example (which is typical) is that the relevant committee may use ROIC or EVA-type measures but, in fact, do not, as they seem to use growth of sales, EPS growth and total shareholder return over a 3-year evaluation period.

https://www.sec.gov/Archives/edgar/data/21665/000120677419001074/cl3440361-def14a.htm

 

Another nagging issue is the fact that companies keep adapting their packages (including when return on capital measures are involved) "to better reflect industry conditions" when, in fact, adaptations are made to maximize short term remuneration outcomes irrespective of long term outcomes. A company I follow and own (Aimia), in 2018, decided to not use the long-term incentive plan and used instead a newly defined short term plan because of a challenging 2018 year. ::)

It also seems that using total shareholder return may be an adequate proxy versus supposedly better measures such as ROIC but only over a longer time frame (10 years? or more) and this is simply not applied in the modern corporate world. This was the idea behind the one-dollar premise of retained earnings described by Mr. Buffett (long term weighting versus short term voting).

I still think that the most reliable measure to determine the level of shareholder-orientation from managers is the amount of ownership that they build and maintain over time especially when they use their own money (earned or not) to buy shares in the open market.

[scorpioncapital]

Indeed, this is for me a 'if you trust the people, then you trust what they do'.

But ROIC enumeration could be a sign that you're on to a good management. Although...I have seen too many cases of managements that had some one dimensional quirk of good management alongside several other not so good ones. The alignment of several favourable variables is really a thing of beauty and I think the key idea is that it is quite rare. If you find a handful of situations like that say 10-15, you should also be tap dancing to work.

[Okonomen]

So what companies have you guys found?

 

I own shares in Autozone, Phillips 66 and Tech Data who have very nice remuneration setups.