Should You Worry About Galway Metals Inc’s (CVE:GWM) CEO Pay?

Robert Hinchcliffe is the CEO of Galway Metals Inc (CVE:GWM), which has recently grown to a market capitalization of CA$17.76m. 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 Hinchcliffe’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. View out our latest analysis for Galway Metals

What has been the trend in GWM’s earnings?

GWM 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. In the past year, GWM delivered negative earnings of -CA$6.54m , which is a further decline from prior year’s loss of -CA$3.39m. Additionally, on average, GWM has been loss-making in the past, with a 5-year average EPS of -CA$0.037. During times of negative earnings, the company may be going through a period of reinvestment and growth, or it can be a signal of some headwind. In any event, CEO compensation should be reflective of the current condition of the business. From the latest financial report, Hinchcliffe’s total compensation remained stable at CA$200.00k since the previous year.
TSXV:GWM Income Statement July 6th 18
TSXV:GWM Income Statement July 6th 18

What’s a reasonable CEO compensation?

Despite the fact that one size does not fit all, as remuneration should be tailored to the specific company and market, we can estimate a high-level thresold to see if GWM deviates substantially from its peers. This exercise can help shareholders ask the right question about Hinchcliffe’s incentive alignment. Typically, a Canadian small-cap is worth around $345M, creates earnings of $24M, and remunerates its CEO circa $770,000 annually. Usually I’d use market cap and profit as factors determining performance, however, GWM’s negative earnings reduces the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Hinchcliffe is being paid within the bounds of reasonableness. On the whole, even though GWM is unprofitable, it seems like the CEO’s pay is appropriate.

Next Steps:

Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in GWM, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. If you have not done so already, I urge you to complete your research by taking a look at the following:

  1. Governance: To find out more about GWM’s governance, look through our infographic report of the company’s board and management.
  2. 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.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of GWM? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!