What has been the trend in AHK’s earnings?Earnings is a powerful indication of AHK’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Jackson’s performance in the past year. In the past year, AHK delivered negative earnings of -A$3.9M , which is a further decline from prior year’s loss of -A$0.7M. Additionally, on average, AHK has been loss-making in the past, with a 5-year average EPS of -A$0.04. In the situation of unprofitability the company may be incurring a period of reinvestment and growth, or it can be an indication of some headwind. Regardless, CEO compensation should emulate the current state of the business. In the latest financial statments, Jackson’s total remuneration grew by 16.36% to A$238,876. Although I couldn’t find information on the composition of Jackson’s pay, if some portion were non-cash items such as stocks and options, then fluxes in AHK’s share price can affect the actual level of what the CEO actually receives.
What’s a reasonable CEO compensation?
Despite the fact that there is no cookie-cutter approach, since remuneration should account for specific factors of the company and market, we can estimate a high-level thresold to see if AHK is an outlier. This exercise helps investors ask the right question about Jackson’s incentive alignment. Normally, an Australian small-cap is worth around $140M, creates earnings of $10M, and pays its CEO at roughly $500,000 per year. Normally I’d use market cap and profit as factors determining performance, however, AHK’s negative earnings reduces the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Jackson is being paid within the bounds of reasonableness. On the whole, although AHK is loss-making, it seems like the CEO’s pay is sound.
What this means for you:
Are you a shareholder? 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. To find out more about AHK’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in AHK, 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. To research more about these fundamentals, I recommend you check out our simple infographic report on AHK’s financial metrics.PS. If you are not interested in Ark Mines anymore, you can use our free platform to see my list of over 50 sustainable companies producing great returns.