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Does Postmedia Network Canada Corp’s (TSX:PNCB) CEO Pay Reflect Performance?

Paul Godfrey took the reins as CEO of Postmedia Network Canada Corp’s (TSX:PNC.B) and grew market cap to CADCA$187.45M recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. I will break down Godfrey’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. View our latest analysis for Postmedia Network Canada

Did Godfrey create value?

Earnings is a powerful indication of PNC.B’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Godfrey’s performance in the past year. In the past year, PNC.B released an earnings of CA$0.8M , moving PNC.B from negative territory of -CA$360.7M in the prior year to profitability. This could signal a turnaround given that PNC.B has been loss-making for the past five years, on average, with an EPS of -CA$336. As profits are moving up and up, CEO pay should represent Godfrey’s hard work. During this period Godfrey’s total remuneration increased by a mere 4.73% to CA$1,740,531. Moreover, Godfrey’s pay is also made up of 8.51% non-cash elements, which means that variabilities in PNC.B’s share price can affect the actual level of what the CEO actually receives.

TSX:PNC.B Past Future Earnings Dec 8th 17
TSX:PNC.B Past Future Earnings Dec 8th 17

Is PNC.B overpaying the CEO?

Even though there is no cookie-cutter approach, as remuneration should be tailored to the specific company and market, we can determine a high-level benchmark to see if PNC.B is an outlier. This exercise can help direct shareholders to ask the right question about Godfrey’s incentive alignment. Generally, a Canadian small-cap is worth around $345M, produces earnings of $24M, and remunerates its CEO circa $770,000 per year. Based on PNC.B’s size and performance, in terms of market cap and earnings, it appears that Godfrey is remunerated higher than other Canadian CEOs of profitable small-caps. Although this is only a rudimentary estimate, shareholders should be aware of this expense.

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 another executive pay raise. Although this analysis is relatively simplified, the fact that Godfrey’s pay is above its peer group should raise questions as to why this may be the case. To find out more about PNC.B’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 Godfrey’s incentives are well-aligned with PNC.B’s shareholders, it is certainly not sufficient to base your investment decision solely on this factor. Whether the company is fundamentally strong depends on PNC.B’s financial health and its future outlook. To research more about these fundamentals, I recommend you check out our simple infographic report on PNC.B’s financial metrics.

PS. If you are not interested in Postmedia Network Canada anymore, you can use our free platform to see my list of over 50 sustainable companies producing great returns.
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.

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