Should You Worry About Strata-X Energy Ltd’s (CVE:SXE) CEO Pay?
Tim Hoops is the CEO of Strata-X Energy Ltd (TSXV:SXE), which has recently grown to a market capitalization of CA$1.80M. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. I will break down Hoops’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 Strata-X Energy
Did Hoops create value?
Earnings is a powerful indication of SXE’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Hoops’s performance in the past year. In the past year, SXE released negative earnings of -US$516.39K . But this is an improvement on prior year’s loss of -US$1.79M, which may signal a turnaround since SXE has been loss-making for the past five years, on average, with an EPS of -US$0.16. As profits are moving up and up, CEO pay should be reflective of Hoops’s hard work. During the same period, Hoops’s total compensation dropped by a significant rate of -39.05%, to US$110.00K.
Is SXE’s CEO overpaid relative to the market?
While one size does not fit all, since remuneration should account for specific factors of the company and market, we can fashion a high-level thresold to see if SXE deviates substantially from its peers. This outcome can help shareholders ask the right question about Hoops’s incentive alignment. On average, a Canadian small-cap has a value of $345M, produces earnings of $24M, and remunerates its CEO circa $770,000 per annum. Normally I’d use market cap and profit as factors determining performance, however, SXE’s negative earnings reduces the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Hoops is being paid within the bounds of reasonableness. Overall, although SXE is loss-making, it seems like the CEO’s pay is fair.
Next Steps:
My conclusion is that Hoops 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 SXE’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 SXE? 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.
