With a market cap of £168bn, AstraZeneca (LSE:AZN) is the second most valuable company on the FTSE 100. But it’s recently been the centre of attention concerning the pay of its chief executive.
On 11 April, shareholders voted to approve a pay package for Pascal Soriot that could see him earn £18.7m in the coming year. However, a third voted against the motion.
And I understand their concerns. His remuneration deal is many, many times more than the average UK salary. And it’s nearly five times higher than the median FTSE 100 CEO salary (excluding pension contributions) of £3.81m.
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I know there isn’t necessarily a correlation between an individual’s talents and how much they’re paid — just look at a list of BBC salaries if you don’t believe me. But in the case of Soriot, I think he’s worth it.
He took over on 1 October 2012 when the company’s share price was £29.18. Today (17 April), it hovers around the £110-mark.
Given this performance I’d be happy to approve his remuneration package, if I was a shareholder.
An impressive performance
Encouragingly, the company continues to grow.
During the year ended 31 December 2023 (FY23), AstraZeneca reported revenue of $45.8bn, an increase of 6% on the previous year. Core (excluding costs relating to intangible assets) earnings per share were $7.26 — 15% higher than in FY22.
On the back of these strong results, the company announced that the 2024 dividend will be $3.10 a share (£2.49 at current exchange rates). That’s 7% higher than for FY23. However, this implies a yield of only 2.2%, which is well below the FTSE 100 average of 3.9%.
As an income investor, I’d usually declare a below-average yield to be disappointing. But I have to make an exception for a pharmaceutical company whose survival depends on its pipeline of new drugs and treatments. The investment required in medical research is huge and I fully understand the decision to prioritise research and development over returns to shareholders.
To be honest, I’d need to do more in-depth research before deciding whether to invest in AstraZeneca. However, at first glance, it appears to be in good financial shape.
Other examples
But I don’t think the same can be said of Ocado Group, which has only recorded a post-tax profit on three occasions since its formation in 2000. During this time, its CEO has been Tim Stenier. His remuneration in 2023 was £1.96m. Yet over the past five years, the company’s share price has fallen by 75%. Something doesn’t feel right here.
Perhaps those shareholders who didn’t approve of Soriot’s pay package would prefer the deal that Michael Murray, the boss of Frasers Group, has negotiated. He doesn’t take a salary. Instead, he will receive stock worth £100m, if he can get the share price to £15 — for 30 consecutive trading days — before October 2025. The sports and fashion retailer’s shares are currently changing hands for around £7.75. I’m sure investors will be delighted if he earns his bonus.
Aligning the interests of shareholders with the pay packets of chief executives seems like a sensible approach to me. For as long as the CEOs of any companies I invest in are increasing my wealth at the same time as drawing their salary cheques, I’ll gladly approve their remuneration packages.
