Chris Anderson took the helm as Ximen Mining Corp’s (CVE:XIM) CEO and grew market cap to CA$3.70m recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. 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 Anderson’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.
What has XIM’s performance been like?XIM 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. Most recently, XIM produced negative earnings of -CA$1.30m . However, this is an improvement on prior year’s loss of -CA$1.61m, which may signal a turnaround since XIM has been loss-making for the past five years, on average, with an EPS of -CA$2.09. Since earnings are heading towards the right direction, CEO pay should mirror Anderson’s valued-adding activities. During this period Anderson’s total remuneration grew by 29.11% to CA$291.14k. In addition to this, Anderson’s pay is also made up of 24.43% non-cash elements, which means that fluxes in XIM’s share price can impact the actual level of what the CEO actually collects at the end of the year.
Is XIM’s CEO overpaid relative to the market?Despite the fact that no standard benchmark exists, since compensation should be tailored to the specific company and market, we can gauge a high-level base line to see if XIM deviates substantially from its peers. This exercise helps investors ask the right question about Anderson’s incentive alignment. On average, a Canadian small-cap has a value of $345M, creates earnings of $24M, and remunerates its CEO circa $770,000 per year. Normally I would use earnings and market cap to account for variations in performance, however, XIM’s negative earnings reduces the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Anderson is remunerated sensibly relative to peers. Overall, even though XIM is loss-making, it seems like the CEO’s pay is appropriate.
My conclusion is that Anderson 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 XIM’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 XIM? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.