Warren Rehn took the helm as Golden Minerals Company’s (AMEX:AUMN) CEO and grew market cap to US$38.37M recently. 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. Today we will assess Rehn’s pay and compare this to the company’s performance over the same period, as well as measure it against other US CEOs leading companies of similar size and profitability. Check out our latest analysis for Golden Minerals
Did Rehn create value?
Profitability of a company is a strong indication of AUMN’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Rehn’s performance. In the past year, AUMN released negative earnings of -US$3.55M . However, this is an improvement on prior year’s loss of -US$5.44M, which may signal a turnaround since AUMN has been loss-making for the past five years, on average, with an EPS of -US$1.82. Given earnings are moving the right way, CEO pay should be reflective of Rehn’s valued-adding activities. In the same year, Rehn’s total compensation grew by 64.03% to US$502.52K.
What’s a reasonable CEO compensation?
Though there is no cookie-cutter approach, since compensation should be tailored to the specific company and market, we can evaluate a high-level base line to see if AUMN is an outlier. This outcome helps investors ask the right question about Rehn’s incentive alignment. Normally, a US small-cap is worth around $1B, produces earnings of $96M, and pays its CEO circa $2.7M per annum. Normally I would use earnings and market cap to account for variations in performance, however, AUMN’s negative earnings reduces the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Rehn is paid aptly compared to those in similar-sized companies. Putting everything together, although AUMN is loss-making, it seems like the CEO’s pay is sound.
In the upcoming year’s AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose an executive pay raise. Will this raise take Rehn’s pay beyond the bound of reasonableness, or will it help in retaining the talented executive? Being proactive in governance decisions is a key part to investing, and collectively, investors can make a big difference. 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 AUMN’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 AUMN? 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.