Vladimir Katic took the helm as Silk Road Energy Inc’s (TSXV:SLK) CEO and grew market cap to CA$360.38K recently. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. 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 Katic’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 Silk Road Energy
What has been the trend in SLK’s earnings?
SLK 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. Over the last year SLK released negative earnings of -CA$0.2M . But this is an improvement on prior year’s loss of -CA$0.3M, which may signal a turnaround since SLK has been loss-making for the past five years, on average, with an EPS of -CA$0.03. Since earnings are heading towards the right direction, CEO pay should mirror Katic’s value creation for shareholders. In the same year, Katic’s total compensation dropped by a non-trivial rate of -33.27%, to CA$60,000.
Is SLK’s CEO overpaid relative to the market?
Despite the fact that one size does not fit all, as compensation should account for specific factors of the company and market, we can evaluate a high-level benchmark to see if SLK is an outlier. This exercise can help direct shareholders to ask the right question about Katic’s incentive alignment. Typically, a Canadian small-cap is worth around $345M, produces earnings of $24M, and remunerates its CEO circa $770,000 annually. Usually I’d use market cap and profit as factors determining performance, however, SLK’s negative earnings lower the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Katic is paid aptly compared to those in similar-sized companies. Overall, even though SLK is unprofitable, it seems like the CEO’s pay is appropriate.
What this means for you:
Are you a shareholder? 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 Katic’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. To find out more about SLK’s governance, look through our infographic report of the company’s board and management.