In This Article:
Tom Pickett took the reins as CEO of Cannindah Resources Limited’s (ASX:CAE) and grew market cap to AU$6.90M recently. 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. Today we will assess Pickett’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 Cannindah Resources
What has CAE’s performance been like?
CAE 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, CAE delivered negative earnings of -AU$851.32K , which is a further decline from prior year’s loss of -AU$815.21K. Additionally, on average, CAE has been loss-making in the past, with a 5-year average EPS of -AU$0.009. During times of negative earnings, the company may be going through a period of reinvestment and growth, or it can be a sign of some headwind. In any event, CEO compensation should be reflective of the current state of the business. In the latest financial report, Pickett’s total compensation increased by 13.46% to AU$285.76K.
Is CAE’s CEO overpaid relative to the market?
While one size does not fit all, as compensation should be tailored to the specific company and market, we can determine a high-level benchmark to see if CAE is an outlier. This outcome can help direct shareholders to ask the right question about Pickett’s incentive alignment. Normally, an Australian small-cap is worth around $140M, generates earnings of $10M, and pays its CEO at roughly $500,000 per annum. Normally I’d use market cap and profit as factors determining performance, however, CAE’s negative earnings lower the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Pickett is being paid within the bounds of reasonableness. On the whole, although CAE is unprofitable, it seems like the CEO’s pay is sound.
Next Steps:
In the upcoming year’s AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose an executive pay raise. Will this raise take Pickett’s pay beyond the bound of reasonableness, or will it help in retaining the talented executive? Being proactive in governance decisions is a key part to investing, and collectively, investors can make a big difference. If you have not done so already, I highly recommend you to complete your research by taking a look at the following: