How Should Investors Feel About Alicanto Minerals Limited’s (ASX:AQI) CEO Pay?
Travis Schwertfeger is the CEO of Alicanto Minerals Limited (ASX:AQI), which has recently grown to a market capitalization of AU$10.23M. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. 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 Schwertfeger’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. View our latest analysis for Alicanto Minerals
What has AQI’s performance been like?
Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Over the last year AQI released negative earnings of -AU$2.03M , which is a further decline from prior year’s loss of -AU$1.38M. Furthermore, on average, AQI has been loss-making in the past, with a 5-year average EPS of -AU$0.041. 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 mirror the current condition of the business. In the most recent financial report, Schwertfeger’s total compensation grew by 9.81% to AU$327.21K. In addition to this, Schwertfeger’s pay is also made up of 7.93% non-cash elements, which means that fluctuations in AQI’s share price can move the real level of what the CEO actually receives.
Is AQI’s CEO overpaid relative to the market?
Though there is no cookie-cutter approach, as compensation should be tailored to the specific company and market, we can estimate a high-level benchmark to see if AQI deviates substantially from its peers. This exercise helps investors ask the right question about Schwertfeger’s incentive alignment. Normally, an Australian small-cap has a value of $140M, generates earnings of $10M, and remunerates its CEO circa $500,000 per annum. Normally I’d use market cap and profit as factors determining performance, however, AQI’s negative earnings reduces the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Schwertfeger is remunerated sensibly relative to peers. Putting everything together, even though AQI is unprofitable, it seems like the CEO’s pay is appropriate.
Next Steps:
CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Is Schwertfeger remunerated appropriately based on other factors we have not covered today? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours. 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 AQI’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 AQI? 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.
