Sandy Stares is the CEO of Metals Creek Resources Corp (TSXV:MEK), which has recently grown to a market capitalization of CA$4.22M. 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. I will break down Stares’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 Metals Creek Resources
What has been the trend in MEK’s earnings?
MEK 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. In the past year, MEK released negative earnings of -CA$0.6M . But this is an improvement on prior year’s loss of -CA$1.3M, which may signal a turnaround since MEK has been loss-making for the past five years, on average, with an EPS of -CA$0.1. As profits are moving up and up, CEO pay should mirror Stares’s value creation for shareholders. In the same year, Stares’s total remuneration rose by 31.89% to CA$211,213. In addition to this, Stares’s pay is also made up of 34.27% non-cash elements, which means that fluctuations in MEK’s share price can impact the real level of what the CEO actually receives.
Is MEK overpaying the CEO?
Even though there is no cookie-cutter approach, since remuneration should be tailored to the specific company and market, we can evaluate a high-level thresold to see if MEK deviates substantially from its peers. This outcome can help direct shareholders to ask the right question about Stares’s incentive alignment. Generally, a Canadian small-cap has a value of $345M, generates earnings of $24M, and remunerates its CEO circa $770,000 annually. Normally I would look at market cap and earnings as a proxy for performance, however, MEK’s negative earnings reduces the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Stares is being paid within the bounds of reasonableness. Overall, although MEK is unprofitable, it seems like the CEO’s pay is fair.
My conclusion is that Stares is not being overpaid. But your role as a shareholder should not end here. As above, this is a relatively simplistic calculation using high-level benchmarket. Proactive shareholders should question their representatives (i.e. the board of directors) how they think about the CEO’s incentive alignment with shareholders and how they balance this with retention and reward. 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 WOW’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 MEK? 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.