Is Erin Ventures Inc’s (CVE:EV) CEO Salary Justified?
Tim Daniels is the CEO of Erin Ventures Inc (TSXV:EV), which has recently grown to a market capitalization of CA$8.35M. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. I will break down Daniels’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 Erin Ventures
What has been the trend in EV’s earnings?
Earnings is a powerful indication of EV’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Daniels’s performance in the past year. Over the last year EV released negative earnings of -CA$1.17M , which is a further decline from prior year’s loss of -CA$861.17K. Furthermore, on average, EV has been loss-making in the past, with a 5-year average EPS of -CA$0.043. In the situation of negative earnings, the company may be incurring a period of reinvestment and growth, or it can be an indication of some headwind. In any case, CEO compensation should emulate the current condition of the business. From the latest financial report, Daniels’s total remuneration declined by a significant rate of -29.90%, to CA$189.23K. Moreover, Daniels’s pay is also made up of 29.61% non-cash elements, which means that variabilities in EV’s share price can move the true level of what the CEO actually collects at the end of the year.
What’s a reasonable CEO compensation?
Though no standard benchmark exists, since remuneration should account for specific factors of the company and market, we can determine a high-level yardstick to see if EV deviates substantially from its peers. This outcome helps investors ask the right question about Daniels’s incentive alignment. Normally, a Canadian small-cap is worth around $345M, creates earnings of $24M, and remunerates its CEO at roughly $770,000 per annum. Typically I would use earnings and market cap to account for variations in performance, however, EV’s negative earnings lower the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Daniels is paid aptly compared to those in similar-sized companies. On the whole, even though EV is unprofitable, it seems like the CEO’s pay is appropriate.
Next Steps:
You can breathe easy knowing that shareholder funds aren’t being used to overpay EV’s CEO. However, on the flipside, you should ask whether Daniels is appropriately remunerated on the basis of retention. Its important for shareholders to be active in voting governance decisions, as board members are only representatives of investors’ voices. 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 EV’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 EV? 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.
