Russ Parker has been at the helm as CEO of Crater Gold Mining Limited (ASX:CGN), which has grown to a market capitalization of AUDA$3.04M. 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. 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. See our latest analysis for Crater Gold Mining
What has been the trend in CGN’s earnings?
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. Over the last year CGN delivered negative earnings of -A$25.3M , which is a further decline from prior year’s loss of -A$10.9M. Furthermore, on average, CGN has been loss-making in the past, with a 5-year average EPS of -A$0.13. During times of unprofitability the company may be going through a period of reinvestment and growth, or it can be a signal of some headwind. In any event, CEO compensation should mirror the current condition of the business. In the most recent report, Parker’s total compensation rose by a mere 1.41% to A$212,832.
What’s a reasonable CEO compensation?
While one size does not fit all, as remuneration should account for specific factors of the company and market, we can gauge a high-level yardstick to see if CGN deviates substantially from its peers. This outcome helps investors 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 at roughly $500,000 annually. Usually I’d use market cap and profit as factors determining performance, however, CGN’s negative earnings reduces the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Parker is paid aptly compared to those in similar-sized companies. Overall, although CGN is loss-making, it seems like the CEO’s pay is reflective of the appropriate level.
What this means for you:
Are you a shareholder? My conclusion is that Parker 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. To find out more about CGN’s governance, look through our infographic report of the company’s board and management.