What has been the trend in API’s earnings?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. In the past year, API produced negative earnings of -CA$966.35k . But this is an improvement on prior year’s loss of -CA$1.43m, which may signal a turnaround since API has been loss-making for the past five years, on average, with an EPS of -CA$0.016. As profits are moving up and up, CEO pay should represent Drivas’s hard work. During this period Drivas’s total compensation remained stable at CA$60.00k since the previous year.
Is API’s CEO overpaid relative to the market?
Though one size does not fit all, since compensation should account for specific factors of the company and market, we can determine a high-level benchmark to see if API is an outlier. This outcome can help direct shareholders to ask the right question about Drivas’s incentive alignment. Normally, a Canadian small-cap has a value of $345M, produces earnings of $24M, and remunerates its CEO circa $770,000 per year. Normally I’d use market cap and profit as factors determining performance, however, API’s negative earnings lower the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Drivas is being paid within the bounds of reasonableness. On the whole, even though API is loss-making, it seems like the CEO’s pay is fair.
My conclusion is that Drivas 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. If you have not done so already, I urge you to complete your research by taking a look at the following:
- Governance: To find out more about API’s governance, look through our infographic report of the company’s board and management.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of API? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!