Research by Evercore ISI into how CEOs at construction supply dealers, home builders, and product manufacturers get paid shows how much--or little--the companies vary when setting incentives for their chief executive's bonus plan.
The research firm did that in its 2019 Housing Primer, issued Jan. 7, by classifying performance metrics into five groups:
* Growth: Revenue, income dollars, free cash flow, earnings per share, and housing metrics.
* Margin: Profit margin, SG&A, income dollars, and earnings per share.
* Returns: Returns on assets, return on investments, return on invested capital, return on equity, and asset efficiency
* Share Price: Total shareholder returns, absolute share price.
* Other: Debt/capital ratio, working capital efficiency, cash conversions, safety, customer satisfaction, and "individual performance."
The table above shows the results for four big dealers as well as averages for nine public home builders and six building products manufacturers. The differences between these dealers are marked: Foundation Building Materials puts twice the emphasis on share price than Beacon Roofing Supply does, BMC is the only dealer where the Returns category metrics matter, while "Other" factors count nearly four times more at Builders FirstSource (BFS) than at Beacon.
Differences also show up when you compare base pay for the top three executives at LBM dealers vs. their builder and manufacturer counterparts. The more than $15 million paid to each of the top three execs at home builder Lennar exceeded total compensation at any of the dealers. Then again, every distribution company examined ran a smaller business than did the builders and manufacturers.
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