Is Azincourt Energy Corp’s (TSXV:AAZ) CEO Paid Enough To Stay Motivated?
Alex Klenman took the reins as CEO of Azincourt Energy Corp’s (TSXV:AAZ) and grew market cap to CADCA$3.33M recently. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. Today we will assess Klenman’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. Check out our latest analysis for Azincourt Energy
Did Klenman create value?
Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Recently, AAZ produced negative earnings of -CA$0.7M , which is a further decline from prior year’s loss of -CA$0.0M. Moreover, on average, AAZ has been loss-making in the past, with a 5-year average EPS of -CA$0.25. In the situation of negative earnings, the company may be facing 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, Klenman’s total compensation grew by 35.30% to CA$0. Furthermore, Klenman’s pay is also comprised of non-cash items, which means that variabilities in AAZ’s share price can move the true level of what the CEO actually takes home at the end of the day.
What’s a reasonable CEO compensation?
Even though one size does not fit all, since compensation should account for specific factors of the company and market, we can gauge a high-level base line to see if AAZ deviates substantially from its peers. This exercise helps investors ask the right question about Klenman’s incentive alignment. On average, a Canadian small-cap is worth around $345M, generates earnings of $24M, and pays its CEO circa $770,000 per year. Usually I would use earnings and market cap to account for variations in performance, however, AAZ’s negative earnings lower the effectiveness of this method. Given the range of pay for small-cap executives, it seems like Klenman is being paid within the bounds of reasonableness. Putting everything together, although AAZ is loss-making, it seems like the CEO’s pay is appropriate.
What this means for you:
Are you a shareholder? CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Is Klenman remunerated appropriately based on other factors we have not covered today? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours. To find out more about AAZ’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? Although remuneration can be a useful gauge of whether Klenman’s incentives are well-aligned with AAZ’s shareholders, it is certainly not sufficient to base your investment decision solely on this factor. Whether the company is fundamentally strong depends on AAZ’s financial health and its future outlook. To research more about these fundamentals, I recommend you check out our simple infographic report on AAZ’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.
