American Patriot Oil & Gas Limited (ASX:AOW): A Perspective On Executive Pay

Alexis Clark took the reins as American Patriot Oil & Gas Limited’s (ASX:AOW) CEO and earned a total compensation of $219,000 over the past year. There has been an increasing movement towards CEOs receiving a large chunk of their compensation through company shares. In 2015, approximately 60% of total compensation for S&P500 CEOs were stock-based incentives. This creates a stronger alignment between executive management interests and those of shareholders. Although AOW is a small-cap company operating in Australia, and may not be directly comparable to their larger counterparts, this analysis is still useful in terms of helping us understand how the company’s CEO is incentivised, and the level of alignment with shareholders.

Check out our latest analysis for American Patriot Oil & Gas In comparison, stock-based incentive is nonexistent in Clark’s salary package last year. This is sometimes the case when stock rewards are tied to company performance, and earnings came in lower than the board had expected. Given that AOW delivered negative earnings to shareholders last year, this supports my theory of underperformance explaining the lack of stock rewards. Another case that could raise red flags is a substantial difference in the growth rate of company earnings compared to executive earnings. For example, if earnings growth dropped by more than 20% while the CEO took home a pay rise of over 20%, there may be a problem with alignment between shareholders and insiders. AOW investors should be relieved as this is not the case for the company. Although EPS was negative over the past year, while CEO compensation declined by -28.85%.
ASX:AOW CEO Compensation Sep 14th 17
ASX:AOW CEO Compensation Sep 14th 17

What’s a reasonable CEO compensation?

Maximum CEO Comp = (0.5% * Net Income + 0.03% * Market Cap)
In the past, limited disclosure related to executive management’s compensation made it a controversial subject in the investing community. Higher transparency resulting from new financial regulations have forced companies to disclose its executive remuneration structure in detail, offering investors some information around the appropriateness of this expense. Above is a simple equation that I use to judge whether AOW’s CEO salary level is reasonable. After inputting AOW’s variables into the equation, CEO compensation exceeds what I would expect to be a reasonable level. This is because AOW delivered a negative income in the previous year, which makes any level of compensation above our benchmark. Generally, compared to CEO salaries of other small-cap companies, Clark’s salary is within the appropriate range.


Although the company faced negative earnings in the past year, American Patriot Oil & Gas’s salary change remains relatively reasonable. Although CEO remuneration can be a useful sign for the alignment between a company’s CEO and its performance, it is certainly not sufficient to base your investment decision solely on this factor. Now that you know to keep in mind CEO compensation when putting together your investment thesis, I recommend you take a look at our latest free analysis report on American Patriot Oil & Gas to see AOW’s fundamentals and whether it could be considered an undervalued opportunity.

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