Peter Glancy has been at the helm as CEO of Contagious Gaming Inc (TSXV:CNS), which has grown to a market capitalization of CA$480.02K. 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. Today we will assess Glancy’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 Contagious Gaming
What has CNS performance been like?
Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Most recently, CNS released negative earnings of -CA$6.9M , which is a further decline from prior year’s loss of -CA$3.8M. Moreover, on average, CNS has been loss-making in the past, with a 5-year average EPS of -CA$1.01. In the situation of unprofitability the company may be incurring 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 most recent financial report, Glancy’s total compensation fell by -9.65%, to CA$127,164. Furthermore, Glancy’s pay is also made up of non-cash elements, which means that fluxes in CNS’s share price can impact the real level of what the CEO actually takes home at the end of the day.
Is CNS’s CEO overpaid relative to the market?
While no standard benchmark exists, since remuneration should be tailored to the specific company and market, we can fashion a high-level thresold to see if CNS deviates substantially from its peers. This exercise can help direct shareholders to ask the right question about Glancy’s incentive alignment. On average, a Canadian small-cap is worth around $345M, creates earnings of $24M, and pays its CEO at roughly $770,000 per year. Typically I’d use market cap and profit as factors determining performance, however, CNS’s negative earnings lower the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Glancy is paid aptly compared to those in similar-sized companies. Putting everything together, even though CNS 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 Glancy’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 CNS’s governance, look through our infographic report of the company’s board and management.