Leading Cameco Corporation (TSX:CCO) as the CEO, Tim Gitzel took the company to a valuation of CA$5.40B. 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 Gitzel’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 Cameco
Did Gitzel create value?
Earnings is a powerful indication of CCO’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Gitzel’s performance in the past year. In the past year, CCO released negative earnings of -CA$132.09M . But this is an improvement on prior year’s loss of -CA$157.68M, though CCO hasn’t always been loss-making, given its average EPS of CA$0.35 over the past five years. Given earnings are moving the right way, CEO pay should echo Gitzel’s valued-adding activities. During this period Gitzel’s total compensation dropped by more than half of the prior year’s level, to CA$5.92M. In addition to this, Gitzel’s pay is also comprised of non-cash elements, which means that fluxes in CCO’s share price can move the true level of what the CEO actually takes home at the end of the day.
Is CCO’s CEO overpaid relative to the market?
Despite the fact that no standard benchmark exists, as remuneration should account for specific factors of the company and market, we can gauge a high-level yardstick to see if CCO deviates substantially from its peers. This exercise helps investors ask the right question about Gitzel’s incentive alignment. Normally, a Canadian mid-cap is worth around $4.1B, creates earnings of $294M and remunerates its CEO at roughly $3.4M annually. Usually I would look at market cap and earnings as a proxy for performance, however, CCO’s negative earnings lower the usefulness of my formula. Analyzing the range of remuneration for mid-cap executives, it seems like Gitzel’s pay is above other similar companies.
What this means for you:
My analysis shows that Gitzel may be paid above the appropriate level, based on the size of CCO and its recent year’s earnings performance. The question to answer now is whether this level of pay is justified. There are most likely other factors I have not account for, but in any case, this outcome should provide a basis for you as shareholders, to question the board’s decision to increase CEO pay in the future. If you have not done so already, I urge you to complete your research by taking a look at the following:
- Governance: To find out more about CCO’s governance, look through our infographic report of the company’s board and management.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of CCO? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
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.