Is Romios Gold Resources Inc (TSXV:RG) Overpaying Its CEO?
Leading Romios Gold Resources Inc (TSXV:RG) as the CEO, Tom Drivas took the company to a valuation of CADCA$11.55M. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. Today we will assess Drivas’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. See our latest analysis for RG
Did Drivas create value?
RG 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. Recently, RG delivered negative earnings of -CA$0.9M , which is a further decline from prior year’s loss of -CA$0.8M. Moreover, on average, RG has been loss-making in the past, with a 5-year average EPS of -CA$0. In the situation of unprofitability the company may be facing a period of reinvestment and growth, or it can be a signal of some headwind. In any event, CEO compensation should be reflective of the current condition of the business. In the most recent financial report, Drivas’s total compensation fell by a trivial -0.63%, to CA$164,654.
Is RG overpaying the CEO?
While no standard benchmark exists, since remuneration should be tailored to the specific company and market, we can determine a high-level yardstick to see if RG deviates substantially from its peers. This outcome helps investors ask the right question about Drivas’s incentive alignment. Typically, a Canadian small-cap has a value of $345M, generates earnings of $24M, and remunerates its CEO circa $770,000 annually. Normally I’d use market cap and profit as factors determining performance, however, RG’s negative earnings reduces the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Drivas is paid aptly compared to those in similar-sized companies. Putting everything together, even though RG is unprofitable, it seems like the CEO’s pay is sound.
What this means for you:
Are you a shareholder? 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 Drivas’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. To find out more about RG’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? Whether Drivas is over or underpaid should not be a deciding factor whether or not you invest in RG. However, the way the company is governed and policies, such as remuneration, are structured, are important considerations for an investor. The best place to start is to understand how well RG is placed financially. To research more about these fundamentals, I recommend you check out our simple infographic report on RG’s financial metrics.
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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.
