Why Tourmaline Oil Corp’s (TSE:TOU) CEO Pay Matters To You
Mike Rose took the helm as Tourmaline Oil Corp’s (TSX:TOU) CEO and grew market cap to CA$5.59B 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 Rose’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 Tourmaline Oil
Did Rose create value?
TOU 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, TOU released a profit of CA$318.3M , moving TOU from negative territory of -CA$57.0M in the prior year to profitability. However, this fluctuation between profitability and loss-making over the past couple of years leads to lower conviction in extrapolating past performance into the future. Given earnings are moving the right way, CEO pay should be reflective of Rose’s hard work. In the same year, Rose’s total compensation fell by -8.41%, to CA$2,820,232. In addition to this, Rose’s pay is also made up of 48.59% non-cash elements, which means that fluctuations in TOU’s share price can affect the true level of what the CEO actually collects at the end of the year.
Is TOU’s CEO overpaid relative to the market?
Despite the fact that no standard benchmark exists, since compensation should be tailored to the specific company and market, we can determine a high-level base line to see if TOU is an outlier. This exercise can help direct shareholders to ask the right question about Rose’s incentive alignment. On average, a Canadian mid-cap is worth around $4.1B, creates earnings of $294M and pays its CEO circa $3.4M per year. Allowing for the size of TOU in terms of market cap, as well as its performance, using earnings as a proxy, it appears that Rose is paid on a similar level to the average Canadian mid-cap CEO This could mean Rose is paid a suitable level.
What this means for you:
Are you a shareholder? Hopefully this article has given you insight on how shareholders should think about TOU’s governance policies such as CEO pay. As an investor, you have the right to understand how the board thinks about management incentives, and also the right to vote for and against substantial CEO pay changes. Governance is a big factor in investing, and I encourage you to dig deeper into those that represent your voice on the board. To find out more about TOU’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? Whether Rose is over or underpaid should not be a deciding factor whether or not you invest in TOU. However, the way the company is governed and policies, such as remuneration, are structured, are important considerations for an investor. The best place to start is to understand how well TOU is placed financially. To research more about these fundamentals, I recommend you check out our simple infographic report on TOU’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.