Anthony Cohen is the CEO of Gulf & Pacific Equities Corp (TSXV:GUF), which has recently grown to a market capitalization of CA$4.68M. 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 Cohen’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 Gulf & Pacific Equities
What has been the trend in GUF’s earnings?
Earnings is a powerful indication of GUF’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Cohen’s performance in the past year. Most recently, GUF produced negative earnings of -CA$1.81M , compared to the previous year’s positive earnings. Moreover, GUF hasn’t always been loss-making, with an average EPS of CA$0.046 over the past five years. In the situation of unprofitability the company may be facing a period of reinvestment and growth, or it can be an indication of some headwind. Regardless, CEO compensation should emulate the current state of the business. In the most recent financial report, Cohen’s total compensation rose by a mere 2.64% to CA$166.46K. Furthermore, Cohen’s pay is also made up of 12.18% non-cash elements, which means that fluxes in GUF’s share price can affect the actual level of what the CEO actually receives.
Is GUF’s CEO overpaid relative to the market?
Even though one size does not fit all, since remuneration should be tailored to the specific company and market, we can determine a high-level yardstick to see if GUF is an outlier. This exercise can help shareholders ask the right question about Cohen’s incentive alignment. Typically, a Canadian small-cap has a value of $345M, generates earnings of $24M, and remunerates its CEO at roughly $770,000 annually. Usually I’d use market cap and profit as factors determining performance, however, GUF’s negative earnings lower the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Cohen is remunerated sensibly relative to peers. Overall, though GUF is loss-making, it seems like the CEO’s pay is appropriate.
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 Cohen 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 GUF’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 GUF? 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.