David Horgan took the helm as Clontarf Energy plc’s (AIM:CLON) CEO and grew market cap to UK£1.28M recently. 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 Horgan’s pay and compare this to the company’s performance over the same period, as well as measure it against other UK CEOs leading companies of similar size and profitability. Check out our latest analysis for Clontarf Energy
What has CLON’s performance been like?
CLON 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. Over the last year CLON delivered negative earnings of -UK£2.78M , which is a further decline from prior year’s loss of -UK£199.63K. Furthermore, on average, CLON has been loss-making in the past, with a 5-year average EPS of -UK£0.0056. In the situation of negative earnings, the company may be going through a period of reinvestment and growth, or it can be an indication of some headwind. In any case, CEO compensation should emulate the current condition of the business. In the most recent financial report, Horgan’s total remuneration remained stable at UK£30.00K since the previous year. Moreover, Horgan’s pay is also made up of 74.00% non-cash elements, which means that variabilities in CLON’s share price can affect the actual level of what the CEO actually receives.
What’s a reasonable CEO compensation?
Despite the fact that no standard benchmark exists, since remuneration should be tailored to the specific company and market, we can estimate a high-level base line to see if CLON is an outlier. This outcome can help shareholders ask the right question about Horgan’s incentive alignment. On average, a UK small-cap has a value of £696M, produces earnings of £67M, and pays its CEO at roughly £1M annually. Normally I would use earnings and market cap to account for variations in performance, however, CLON’s negative earnings lower the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Horgan is being paid within the bounds of reasonableness. On the whole, although CLON is loss-making, it seems like the CEO’s pay is reflective of the appropriate level.
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 Horgan’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 CLON’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 CLON? 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.