Is DXI Energy Inc’s (TSE:DXI) CEO Salary Justified?
Bob Hodgkinson took the helm as DXI Energy Inc’s (TSX:DXI) CEO and grew market cap to CA$9.84M 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 Hodgkinson’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 DXI Energy
What has DXI’s performance been like?
Earnings is a powerful indication of DXI’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Hodgkinson’s performance in the past year. Recently, DXI delivered negative earnings of -CA$6.3M . However, this is an improvement on prior year’s loss of -CA$6.9M, which may signal a turnaround since DXI has been loss-making for the past five years, on average, with an EPS of -CA$0.24. Since earnings are heading towards the right direction, CEO pay should echo Hodgkinson’s valued-adding activities. Over the same period Hodgkinson’s total compensation fell by a marginal -3.15%, to CA$257,617. Furthermore, Hodgkinson’s pay is also made up of 16.46% non-cash elements, which means that fluctuations in DXI’s share price can impact the true level of what the CEO actually collects at the end of the year.
Is DXI overpaying the CEO?
While there is no cookie-cutter approach, since compensation should account for specific factors of the company and market, we can fashion a high-level yardstick to see if DXI is an outlier. This outcome helps investors ask the right question about Hodgkinson’s incentive alignment. Typically, a Canadian small-cap has a value of $345M, generates earnings of $24M, and pays its CEO circa $770,000 per annum. Typically I would look at market cap and earnings as a proxy for performance, however, DXI’s negative earnings reduces the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Hodgkinson is being paid within the bounds of reasonableness. On the whole, although DXI is unprofitable, it seems like the CEO’s pay is sound.
Next Steps:
In order to determine whether or not you should invest in DXI, your thesis should be built on fundamentals. Even though CEO pay isn’t technically a key concern, it could serve as an indication as to how board members align incentives and how they think about setting policies. These issues directly impacts how DXI makes money, and factors impacting your return on investment. If you have not done so already, I urge you to complete your research by taking a look at the following:
1. Governance: To find out more about WOW’s governance, look through our infographic report of the company’s board and management.
2. 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.
3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of DXI? 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.
