Does Sundance Resources Limited’s (ASX:SDL) CEO Salary Reflect Performance?
Giulio Casello took the helm as Sundance Resources Limited’s (ASX:SDL) CEO and grew market cap to AU$36.32M 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 Casello’s pay and compare this to the company’s performance over the same period, as well as measure it against other Australian CEOs leading companies of similar size and profitability. Check out our latest analysis for Sundance Resources
Did Casello create value?
Earnings is a powerful indication of SDL’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Casello’s performance in the past year. Over the last year SDL released negative earnings of -AU$5.95M . However, this is an improvement on prior year’s loss of -AU$19.05M, which may signal a turnaround since SDL has been loss-making for the past five years, on average, with an EPS of -AU$0.012. As profits are moving up and up, CEO pay should represent Casello’s valued-adding activities. During the same period, Casello’s total compensation grew by 11.94% to AU$737.97K. Furthermore, Casello’s pay is also comprised of non-cash items, which means that fluctuations in SDL’s share price can affect the true level of what the CEO actually collects at the end of the year.
Is SDL’s CEO overpaid relative to the market?
Despite the fact that one size does not fit all, as compensation should account for specific factors of the company and market, we can determine a high-level base line to see if SDL deviates substantially from its peers. This outcome can help shareholders ask the right question about Casello’s incentive alignment. Normally, an Australian small-cap is worth around $140M, creates earnings of $10M, and remunerates its CEO circa $500,000 per year. Typically I would use earnings and market cap to account for variations in performance, however, SDL’s negative earnings reduces the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Casello’s pay exceeds its peer group.
What this means for you:
SDL may be paying its CEO above-market rates due to many reasons – retention, reward, or inflated non-cash components of total pay. However, shareholders also should be aware of what the appropriate level is. Boards should be transparent with how they structure CEO pay given that there should be nothing to hide in public companies. Hopefully this analysis has given you the basis for questioning the next CEO pay raise. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
Governance: To find out more about SDL’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 SDL? 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.
