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Why iCo Therapeutics Inc’s (CVE:ICO) CEO Pay Matters To You

Leading iCo Therapeutics Inc (TSXV:ICO) as the CEO, Andrew Rae took the company to a valuation of CA$2.53M. 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. Today we will assess Rae’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 iCo Therapeutics

Did Rae create value?

Profitability of a company is a strong indication of ICO’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Rae’s performance. Most recently, ICO delivered negative earnings of -CA$1.24M . However, this is an improvement on prior year’s loss of -CA$1.49M, which may signal a turnaround since ICO has been loss-making for the past five years, on average, with an EPS of -CA$0.041. As profits are moving up and up, CEO pay should mirror Rae’s valued-adding activities. During this period Rae’s total compensation rose by a mere 2.45% to CA$314.60K. Moreover, Rae’s pay is also made up of 27.65% non-cash elements, which means that variabilities in ICO’s share price can affect the true level of what the CEO actually receives.

TSXV:ICO Past Future Earnings Apr 27th 18
TSXV:ICO Past Future Earnings Apr 27th 18

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 fashion a high-level benchmark to see if ICO deviates substantially from its peers. This exercise helps investors ask the right question about Rae’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. Usually I would use earnings and market cap to account for variations in performance, however, ICO’s negative earnings reduces the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Rae is paid aptly compared to those in similar-sized companies. Putting everything together, even though ICO is unprofitable, it seems like the CEO’s pay is reflective of the appropriate level.

Next Steps:

In order to determine whether or not you should invest in ICO, 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 ICO makes money, and factors impacting your return on investment. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

  1. Governance: To find out more about ICO’s governance, look through our infographic report of the company’s board and management.

  2. 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.

  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of ICO? 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.

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