What Did Signature Resources Ltd’s (TSXV:SGU) CEO Take Home Last Year?

Walter Hanych has been at the helm as CEO of Signature Resources Ltd (TSXV:SGU), which has grown to a market capitalization of CADCA$5.70M. 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 Hanych’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 SGU

What has SGU performance been like?

SGU 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, SGU delivered negative earnings of -CA$0M , which is a further decline from prior year’s loss of -CA$0M. Additionally, on average, SGU has been loss-making in the past, with a 5-year average EPS of -CA$0.02. During times of unprofitability the company may be going through a period of reinvestment and growth, or it can be a signal of some headwind. In any case, CEO compensation should mirror the current condition of the business. In the latest financial statments, Hanych’s total remuneration rose by 55.08% to CA$93,187.
TSXV:SGU Income Statement Dec 1st 17
TSXV:SGU Income Statement Dec 1st 17

Is SGU overpaying the CEO?

While no standard benchmark exists, since compensation should be tailored to the specific company and market, we can determine a high-level base line to see if SGU is an outlier. This exercise helps investors ask the right question about Hanych’s incentive alignment. Generally, a Canadian small-cap is worth around $345M, produces earnings of $24M, and remunerates its CEO at roughly $770,000 annually. Normally I would use earnings and market cap to account for variations in performance, however, SGU’s negative earnings lower the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Hanych is being paid within the bounds of reasonableness. Putting everything together, even though SGU is loss-making, it seems like the CEO’s pay is sound.

What this means for you:

Are you a shareholder? My conclusion is that Hanych 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. To find out more about SGU’s governance, look through our infographic report of the company’s board and management.

Are you a potential investor? Although remuneration can be a useful gauge of whether Hanych’s incentives are well-aligned with SGU’s shareholders, it is certainly not sufficient to base your investment decision solely on this factor. Whether the company is fundamentally strong depends on SGU’s financial health and its future outlook. To research more about these fundamentals, I recommend you check out our simple infographic report on SGU’s financial metrics.

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