Should You Worry About First Bauxite Corporation’s (CVE:FBX) CEO Pay Check?
Alan Roughead is the CEO of First Bauxite Corporation (TSXV:FBX), which has recently grown to a market capitalization of CA$4.70M. 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 Roughead’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 First Bauxite
Did Roughead create value?
Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Most recently, FBX released negative earnings of -$4.0M . However, this is an improvement on prior year’s loss of -$15.2M, which may signal a turnaround since FBX has been loss-making for the past five years, on average, with an EPS of -$0.09. As profits are moving up and up, CEO pay should represent Roughead’s value creation for shareholders. During this period Roughead’s total remuneration declined by -13.60%, to $323,891. In addition to this, Roughead’s pay is also made up of 4.25% non-cash elements, which means that fluxes in FBX’s share price can affect the actual level of what the CEO actually takes home at the end of the day.
What’s a reasonable CEO compensation?
While there is no cookie-cutter approach, as remuneration should be tailored to the specific company and market, we can determine a high-level yardstick to see if FBX is an outlier. This exercise can help direct shareholders to ask the right question about Roughead’s incentive alignment. Typically, a Canadian small-cap is worth around $345M, generates earnings of $24M, and pays its CEO at roughly $770,000 per annum. Typically I would use earnings and market cap to account for variations in performance, however, FBX’s negative earnings lower the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Roughead is remunerated sensibly relative to peers. Overall, although FBX is unprofitable, it seems like the CEO’s pay is reflective of the appropriate level.
Next Steps:
Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in FBX, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. If you have not done so already, I urge you to complete your research by taking a look at the following:
1. Governance: To find out more about FBX’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 FBX? 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.
