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We Think The Compensation For Li Auto Inc.'s (NASDAQ:LI) CEO Looks About Right

Key Insights

  • Li Auto will host its Annual General Meeting on 31st of May

  • Salary of CN¥1.77m is part of CEO Xiang Li's total remuneration

  • The total compensation is 98% less than the average for the industry

  • Li Auto's EPS grew by 121% over the past three years while total shareholder loss over the past three years was 17%

Shareholders may be wondering what CEO Xiang Li plans to do to improve the less than great performance at Li Auto Inc. (NASDAQ:LI) recently. At the next AGM coming up on 31st of May, they can influence managerial decision making through voting on resolutions, including executive remuneration. Setting appropriate executive remuneration to align with the interests of shareholders may also be a way to influence the company performance in the long run. In our opinion, CEO compensation does not look excessive and we discuss why.

View our latest analysis for Li Auto

Comparing Li Auto Inc.'s CEO Compensation With The Industry

Our data indicates that Li Auto Inc. has a market capitalization of US$22b, and total annual CEO compensation was reported as CN¥1.9m for the year to December 2023. Notably, that's an increase of 12% over the year before. Notably, the salary which is CN¥1.77m, represents most of the total compensation being paid.

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In comparison with other companies in the American Auto industry with market capitalizations over US$8.0b, the reported median total CEO compensation was CN¥78m. This suggests that Xiang Li is paid below the industry median. What's more, Xiang Li holds US$4.5b worth of shares in the company in their own name, indicating that they have a lot of skin in the game.

Component

2023

2022

Proportion (2023)

Salary

CN¥1.8m

CN¥1.6m

92%

Other

CN¥153k

CN¥139k

8%

Total Compensation

CN¥1.9m

CN¥1.7m

100%

Talking in terms of the industry, salary represented approximately 16% of total compensation out of all the companies we analyzed, while other remuneration made up 84% of the pie. Li Auto pays out 92% of remuneration in the form of a salary, significantly higher than the industry average. If salary is the major component in total compensation, it suggests that the CEO receives a higher fixed proportion of the total compensation, regardless of performance.

ceo-compensation
ceo-compensation

Li Auto Inc.'s Growth

Over the past three years, Li Auto Inc. has seen its earnings per share (EPS) grow by 121% per year. It achieved revenue growth of 140% over the last year.

This demonstrates that the company has been improving recently and is good news for the shareholders. The combination of strong revenue growth with medium-term EPS improvement certainly points to the kind of growth we like to see. Looking ahead, you might want to check this free visual report on analyst forecasts for the company's future earnings..

Has Li Auto Inc. Been A Good Investment?

Since shareholders would have lost about 17% over three years, some Li Auto Inc. investors would surely be feeling negative emotions. So shareholders would probably want the company to be less generous with CEO compensation.

To Conclude...

The fact that shareholders have earned a negative share price return is certainly disconcerting. This diverges with the robust growth in EPS, suggesting that there is a large discrepancy between share price and fundamentals. A key question may be why the fundamentals have not yet been reflected into the share price. The upcoming AGM will provide shareholders the opportunity to raise their concerns and evaluate if the board’s judgement and decision-making is aligned with their expectations.

While it is important to pay attention to CEO remuneration, investors should also consider other elements of the business. We've identified 2 warning signs for Li Auto that investors should be aware of in a dynamic business environment.

Important note: Li Auto is an exciting stock, but we understand investors may be looking for an unencumbered balance sheet and blockbuster returns. You might find something better in this list of interesting companies with high ROE and low debt.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.