Is NRG Metals Inc (CVE:NGZ) Overpaying Its CEO?
Adrian F. Hobkirk took the helm as NRG Metals Inc’s (TSXV:NGZ) CEO and grew market cap to CA$27.17M 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 Hobkirk’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 NRG Metals
Did Hobkirk create value?
NGZ can create value to shareholders by increasing its profitability, which in turn is reflected into the share price and the investor’s ability to sell their shares at higher capital gains. Most recently, NGZ produced negative earnings of -CA$3.75M , which is a further decline from prior year’s loss of -CA$940.81K. Moreover, on average, NGZ has been loss-making in the past, with a 5-year average EPS of -CA$0.39. During times of unprofitability the company may be incurring a period of reinvestment and growth, or it can be an indication of some headwind. In any event, CEO compensation should echo the current state of the business. From the latest financial report, Hobkirk’s total remuneration grew by 12.06% to CA$141.19K.
Is NGZ’s CEO overpaid relative to the market?
Even though no standard benchmark exists, since remuneration should account for specific factors of the company and market, we can fashion a high-level base line to see if NGZ deviates substantially from its peers. This exercise helps investors ask the right question about Hobkirk’s incentive alignment. Normally, a Canadian small-cap has a value of $345M, produces earnings of $24M, and remunerates its CEO circa $770,000 per year. Typically I’d use market cap and profit as factors determining performance, however, NGZ’s negative earnings reduces the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Hobkirk is remunerated sensibly relative to peers. Putting everything together, though NGZ is loss-making, it seems like the CEO’s pay is sound.
Next Steps:
You can breathe easy knowing that shareholder funds aren’t being used to overpay NGZ’s CEO. However, on the flipside, you should ask whether Hobkirk 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 NGZ’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 NGZ? 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.
