What has DTM’s performance been like?
Profitability of a company is a strong indication of DTM’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Chirnside’s performance. Recently, DTM delivered negative earnings of -AU$2.17M , which is a further decline from prior year’s loss of -AU$580.30K. Furthermore, on average, DTM has been loss-making in the past, with a 5-year average EPS of -AU$0.0048. In the situation of negative earnings, the company may be going through a period of reinvestment and growth, or it can be a sign of some headwind. Regardless, CEO compensation should echo the current condition of the business. In the most recent financial statments, Chirnside’s total compensation remained stable at AU$195.73K since the previous year. Although I couldn’t find information on the breakdown of Chirnside’s pay, if some portion were non-cash items such as stocks and options, then fluctuations in DTM’s share price can move the actual level of what the CEO actually collects at the end of the year.What’s a reasonable CEO compensation?
Despite the fact that no standard benchmark exists, since compensation should account for specific factors of the company and market, we can estimate a high-level base line to see if DTM is an outlier. This outcome can help shareholders ask the right question about Chirnside’s incentive alignment. Typically, an Australian small-cap is worth around $140M, creates earnings of $10M, and remunerates its CEO circa $500,000 per year. Usually I would use earnings and market cap to account for variations in performance, however, DTM’s negative earnings lower the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Chirnside is being paid within the bounds of reasonableness. Overall, even though DTM is unprofitable, it seems like the CEO’s pay is appropriate.
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 Chirnside 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 urge you to complete your research by taking a look at the following:
- Governance: To find out more about DTM’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 DTM? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!