Dealership Incentives

AutoNation - NYSE: AN

When AutoNation released their most recent proxy, I noticed an interesting disclosure that hadn’t shown up in the past. Their CEO received a large one-time performance RSU based on “aggressive stock price performance targets”.

Let’s dive in.

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On March 1, 2025, AutoNation gave its CEO, Michael Manley, a special, one-time performance-based RSU award up to a maximum of 134,365 shares (threshold performance would result in a payout of 26,873 shares). With AutoNation shares trading at ~$182 on the grant date, this represented a payout well in excess of $25MM at the high end.

The award is based on absolute stockholder return during a 5-year period, in addition to continued service requirements. The RSUs cliff-vest following the performance period, and will be forfeited if Manley retires or voluntarily resigns without “good reason” during this time.

Unfortunately, no other details were provided. The company also mentioned that they “will include additional discussion of the One-Time PSU Award in next year’s Compensation Discussion and Analysis.”

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As I examine the grant, a few thoughts come to mind:

• AutoNation’s stock price today is essentially unchanged from the grant-date stock price, which means that we haven’t missed out.

  • The grant was also provided at a time when the stock was only ~9% away from its previous all-time high. Either the grant was made because they see continued upside, or the grant was random and completely uninformed. The former seems more likely.

• The grant was awarded on March 1, which is typically when AutoNation executives receive their yearly grants. This is ~2 weeks after their full-year results were released, which suggests that they aren’t playing with the timing of the award.

• The stock price hurdles of the award are not disclosed, and may not even be disclosed in next year’s proxy.

  • This is unfortunate, but one could assign arbitrary performance bands to run a mock scenario analysis.

    • “Threshold” performance would likely be a 5% CAGR. If this was the case, the stock would need to reach ~$232 by the end of the 5-year period, and the PSUs would be worth ~$6MM.

      • Manley typically receives ~$7-10MM of stock compensation per year, so this wouldn’t really be a “win”.

    • “Maximum” performance would likely be a +15% CAGR. If this was the case, the stock would need to reach ~$366 by the end of the 5-year period, and the PSUs would be worth ~$49MM.

      • Even if my hurdle rate isn’t exactly correct, the size of the dangling carrot is very large in gross dollar terms.

• The accounting value for the award is $15MM.

  • Manley’s total yearly stock compensation is $7-10MM, which is significantly less than this award.

• Most recently, AutoNation executive stock awards comprised 40% RSUs, 30% relative-TSR RSUs, and 30% ROIC RSUs.

  • The granting of an award based on absolute stock price performance over a 5-year period is a significant change from the past. I haven’t found an instance where AutoNation has done this before.

  • Per the Form 4 disclosure on March 4, 2025, it looks as though Manley still received his yearly RSU grant worth ~$4.6MM.

• Manley has been at AutoNation since September 2021 and has collected $13-15MM per year in total compensation.

  • He currently holds ~100K shares of stock worth ~$20MM, in addition to another +$25MM of unvested equity awards.

  • At the mid to upper end value, this new award could be quite large relative to his current equity.

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As for the business itself, AutoNation trades at ~9-11x forward P/E, and their strategy of heavy share repurchases is a consistent and stated capital allocation decision going forward. It doesn’t take heroic assumptions to pencil out a +10% CAGR in the stock as of today, assuming earnings stay constant.

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While details of the grant are limited, the structure of the award suggests that investors should revise their probability models accordingly. In this case, I think it would be wise to bet alongside Manley.