Steve Konopelky took the helm as Silver Mountain Mines Inc’s (TSXV:SMM) CEO and grew market cap to CA$965.03K 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 Konopelky’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. Check out our latest analysis for Silver Mountain Mines
Did Konopelky create value?
SMM 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, SMM released negative earnings of -CA$0.2M . But this is an improvement on prior year’s loss of -CA$0.2M, which may signal a turnaround since SMM has been loss-making for the past five years, on average, with an EPS of -CA$0.01. Since earnings are heading towards the right direction, CEO pay should echo Konopelky’s value creation for shareholders. In the same year, Konopelky’s total compensation declined by -17.82%, to CA$129,375. Moreover, Konopelky’s pay is also made up of non-cash items, which means that variabilities in SMM’s share price can affect the true level of what the CEO actually receives.
Is SMM’s CEO overpaid relative to the market?
Even though one size does not fit all, since compensation should be tailored to the specific company and market, we can gauge a high-level benchmark to see if SMM is an outlier. This exercise helps investors ask the right question about Konopelky’s incentive alignment. Typically, a Canadian small-cap is worth around $345M, creates earnings of $24M, and pays its CEO at roughly $770,000 per annum. Usually I would use earnings and market cap to account for variations in performance, however, SMM’s negative earnings lower the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Konopelky is paid aptly compared to those in similar-sized companies. Putting everything together, although SMM is loss-making, it seems like the CEO’s pay is reflective of the appropriate level.
What this means for you:
Are you a shareholder? You can breathe easy knowing that shareholder funds aren’t being used to overpay SMM’s CEO. However, on the flipside, you should ask whether Konopelky 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. To find out more about SMM’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? In order to determine whether or not you should invest in SMM, your thesis should be built on fundamentals. Even though CEO pay isn’t technically a key concern, it could serve as an indication as to how board members align incentives and how they think about setting policies. These issues directly impacts how SMM makes money, and factors impacting your return on investment. To research more about these fundamentals, I recommend you check out our simple infographic report on SMM’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.