Russ Parker took the helm as Crater Gold Mining Limited’s (ASX:CGN) CEO and grew market cap to AU$5.59M recently. 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 Parker’s pay and compare this to the company’s performance over the same period, as well as measure it against other Australian CEOs leading companies of similar size and profitability. Check out our latest analysis for Crater Gold Mining
What has CGN’s performance been like?
Profitability of a company is a strong indication of CGN’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Parker’s performance. Most recently, CGN delivered negative earnings of -AU$19.18M , which is a further decline from prior year’s loss of -AU$18.11M. Furthermore, on average, CGN has been loss-making in the past, with a 5-year average EPS of -AU$0.12. In the situation of negative earnings, the company may be going through a period of reinvestment and growth, or it can be an indication of some headwind. In any event, CEO compensation should be reflective of the current condition of the business. In the latest financial report, Parker’s total remuneration increased by a mere 1.41% to AU$212.83K.
Is CGN overpaying the CEO?
Though no standard benchmark exists, as remuneration should account for specific factors of the company and market, we can fashion a high-level base line to see if CGN deviates substantially from its peers. This outcome can help shareholders ask the right question about Parker’s incentive alignment. Generally, an Australian small-cap has a value of $140M, creates earnings of $10M, and remunerates its CEO circa $500,000 annually. Normally I would look at market cap and earnings as a proxy for performance, however, CGN’s negative earnings lower the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Parker is being paid within the bounds of reasonableness. Putting everything together, although CGN is loss-making, it seems like the CEO’s pay is fair.
Next Steps:
Hopefully this article has given you insight on how shareholders should think about CGN’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. If you have not done so already, I highly recommend you to complete your research by taking a look at the following: