Does Ark Mines Limited’s (ASX:AHK) CEO Pay Matter?

Roger Jackson took the reins as CEO of Ark Mines Limited’s (ASX:AHK) and grew market cap to AU$3.24M 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 Jackson’s pay and compare this to the company’s performance over the same period, as well as measure it against other Australian CEOs leading companies of similar size and profitability. View our latest analysis for Ark Mines

What has been the trend in AHK’s earnings?

AHK 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, AHK produced negative earnings of -AU$3.38M , which is a further decline from prior year’s loss of -AU$1.22M. Furthermore, on average, AHK has been loss-making in the past, with a 5-year average EPS of -AU$0.046. During times of unprofitability the company may be facing a period of reinvestment and growth, or it can be a sign of some headwind. In any event, CEO compensation should represent the current state of the business. From the latest financial report, Jackson’s total remuneration rose by 16.36% to AU$238.88K. Although I couldn’t find information on the breakdown of Jackson’s pay, if some portion were non-cash items such as stocks and options, then fluxes in AHK’s share price can move the actual level of what the CEO actually receives.
ASX:AHK Income Statement Mar 20th 18
ASX:AHK Income Statement Mar 20th 18

Is AHK’s CEO overpaid relative to the market?

While no standard benchmark exists, as remuneration should be tailored to the specific company and market, we can evaluate a high-level base line to see if AHK deviates substantially from its peers. This outcome can help shareholders ask the right question about Jackson’s incentive alignment. Typically, an Australian small-cap has a value of $140M, generates earnings of $10M, and remunerates its CEO at roughly $500,000 per annum. Typically I would look at market cap and earnings as a proxy for performance, however, AHK’s negative earnings reduces the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Jackson is paid aptly compared to those in similar-sized companies. Overall, although AHK is loss-making, it seems like the CEO’s pay is fair.

Next Steps:

CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Is Jackson remunerated appropriately based on other factors we have not covered today? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

  1. Governance: To find out more about AHK’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 AHK? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!