Is Atlatsa Resources Corporation’s (TSX:ATL) CEO Salary Justified?
HAROLD Motaung took the helm as Atlatsa Resources Corporation’s (TSX:ATL) CEO and grew market cap to CADCA$11.00M recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. I will break down Motaung’s pay and compare this to the company’s performance over the same period, as well as measure it against other Canadian CEOs leading companies of similar size and profitability. See our latest analysis for ATL
Did Motaung create value?
Earnings is a powerful indication of ATL’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Motaung’s performance in the past year. In the past year, ATL produced negative earnings of -CA$203.2M , which is a further decline from prior year’s loss of -CA$34.1M. Additionally, on average, ATL has been loss-making in the past, with a 5-year average EPS of -CA$0.07. In the situation of negative earnings, the company may be incurring a period of reinvestment and growth, or it can be an indication of some headwind. In any event, CEO compensation should mirror the current state of the business. In the most recent report, Motaung’s total remuneration fell by a substantial rate of -20.62%, to CA$510,312. Furthermore, Motaung’s pay is also made up of 8.65% non-cash elements, which means that fluxes in ATL’s share price can move the actual level of what the CEO actually receives.
Is ATL’s CEO overpaid relative to the market?
Despite the fact that no standard benchmark exists, as compensation should account for specific factors of the company and market, we can estimate a high-level yardstick to see if ATL deviates substantially from its peers. This outcome can help direct shareholders to ask the right question about Motaung’s incentive alignment. Generally, a Canadian small-cap has a value of $345M, generates earnings of $24M, and pays its CEO at roughly $770,000 per year. Usually I would look at market cap and earnings as a proxy for performance, however, ATL’s negative earnings reduces the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Motaung is remunerated sensibly relative to peers. Overall, even though ATL is unprofitable, it seems like the CEO’s pay is fair.
What this means for you:
Are you a shareholder? In the upcoming year’s AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose an executive pay raise. Will this raise take Motaung’s pay beyond the bound of reasonableness, or will it help in retaining the talented executive? Being proactive in governance decisions is a key part to investing, and collectively, investors can make a big difference. To find out more about ATL’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? While CEO compensation is a good indication for how well-aligned the company leader is its investors, it is certainly not enough to simply base your investment decision on this metric. Regardless of whether Motaung’s pay is above or below peers, the more important factors to look at is ATL’s track record of performance and future outlook moving forward. To research more about these fundamentals, I recommend you check out our simple infographic report on ATL’s financial metrics.
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To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
