Are Micron’s CEO and Board Earning Their Pay?

Against peer-to-peer executive level compensation, MU stock represents decent value

Micron (NASDAQ:MU) reported its third quarter of 2019 earnings on June 25. Analysts were expecting earnings per share to hit 80 cents. The company delivered $1.05, well ahead of consensus forecasts. MU stock has gone virtually straight up since the end of June, gaining 43% through Sept. 4.

Relative to exec compensation, MU stock appears like a solid value play
Source: Charles Knowles / Shutterstock.com

That’s great news if you own Micron stock.

However, business isn’t perfect at the chipmakers. Micron’s earnings were two-thirds what they were in Q3 2018. So, there’s still lots of work to be done to right the ship.

That got me thinking about executive compensation.

Are Micron CEO Sanjay Mehrotra and the rest of the board earning their pay?

If you go by the performance of MU stock in 2019, the answer is a resounding yes. However, if you look a little deeper, like most things in life, I think you’ll find that it’s not that simple an answer.

Here’s why.

The CEO’s Compensation

The Equilar 100 details the total compensation of CEOs at 100 of America’s largest companies.

Sanjay Mehrotra is 84 on the list with annual compensation of $15.4 million. That was the CEO’s compensation in fiscal 2017. In fiscal 2018, Mehrotra earned $14.2 million.

So, Micron’s revenue in 2018 was $20.3 billion, or 1,322 times its CEO’s compensation that year. By comparison, IBM (NYSE:IBM) CEO Ginni Rometty, of whom I’m not a big fan, earned $18 million according to Equilar on $79.1 billion in revenue for a multiple of 4,392, more than three times Micron’s.

Under this framework, the Micron CEO’s compensation was much higher.

Let’s not forget that Equilar’s compensation doesn’t take into account the stock vested in a given year. In Mehrotra’s case, that means an additional $3 million should be added to his $14.2 million the chief executive earned in fiscal 2018, for a total of $17.2 million.

The Board’s Compensation

Micron had six non-employee board members in fiscal 2018, including non-executive chairman Robert Switz. They earned a combined $2.5 million in cash and stock awards.

All six of the non-employee directors received an annual retainer of $125,000. They can take this in cash or stock or deferred rights to receive stock upon termination as a director. Above that, committee chairs get an additional $20,000 to $35,000 and the board chair an additional $150,000. Finally, all six were granted 6,015 shares of MU stock at a grant price of $41.56.

Based on current prices, that’s an 18% appreciation.

The non-employee directors are required to hold stock valued at five times their annual retainer, which works out to $625,000. Of the six directors, Lawrence Mondry held the most shares (139,287), according to its 2018 proxy. These shares are worth $6.8 million or 10 times the guideline.

The board met six times in fiscal 2018. Of the committees, the audit committee met the most getting together on eight occasions. This suggests that additional travel was required beyond the six board meetings.

So, the six non-employee directors earned $2.5 million in 2018. Let’s assume that they all attended eight meetings. That’s an average of $52,083 per director per meeting. I don’t need to give you the hourly calculation.

Now, let’s compare that to the CEO’s pay.

Let’s assume the CEO worked five days per week and 48 weeks of the year in 2018. Based on Mehrotra’s $17.2 million compensation, the chief executive earned $71,667 per day. That’s about 1.4 times the daily rate for the non-employee board members (based on a board meeting taking a single day).

Micron spent slightly less than $20 million annually for its board and CEO in 2018 at daily rates between $52,000 and $72,000.

The Bottom Line on MU Stock

CEO and director compensation is relative.

In fiscal 2018, Mehrotra earned 252 times the company’s median employee, who made a total of $56,540. By that standard, the board and CEO earned a king’s ransom.

However, compared to Ginni Rometty, who was paid 319 times the median pay of IBM’s employees ($55,088) in fiscal 2018, Micron’s executive compensation isn’t out of line.

Just don’t try to tell that to the rank and file.

At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2019/09/are-microns-ceo-and-board-earning-their-pay/.

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