How Should Investors React To Golden Rim Resources Ltd's (ASX:GMR) CEO Pay?

Leading Golden Rim Resources Ltd (ASX:GMR) as the CEO, Craig Mackay took the company to a valuation of AUDA$7.81M. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. I will break down Mackay’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 Golden Rim Resources

What has GMR performance been like?

Earnings is a powerful indication of GMR's ability to invest shareholders' funds and generate returns. Therefore I will use earnings as a proxy of Mackay's performance in the past year. Most recently, GMR produced negative earnings of -A$6.1M , which is a further decline from prior year's loss of -A$0.3M. Additionally, on average, GMR has been loss-making in the past, with a 5-year average EPS of -A$0.2. During times of negative earnings, the company may be going through a period of reinvestment and growth, or it can be an indication of some headwind. In any case, CEO compensation should echo the current condition of the business. In the most recent report, Mackay's total compensation grew by 21.80% to A$339,835. Furthermore, Mackay's pay is also comprised of non-cash elements, which means that fluxes in GMR's share price can impact the true level of what the CEO actually receives.

Is GMR overpaying the CEO?

Though one size does not fit all, since compensation should account for specific factors of the company and market, we can determine a high-level yardstick to see if GMR is an outlier. This exercise can help direct shareholders to ask the right question about Mackay’s incentive alignment. Generally, an Australian small-cap is worth around $140M, generates earnings of $10M, and remunerates its CEO at roughly $500,000 annually. Usually I would look at market cap and earnings as a proxy for performance, however, GMR's negative earnings lower the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Mackay is paid aptly compared to those in similar-sized companies. On the whole, though GMR is unprofitable, it seems like the CEO’s pay is fair.

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 Mackay 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 GMR's governance, look through our infographic report of the company's board and management.

Are you a potential investor? In order to determine whether or not you should invest in GMR, your thesis should be built on fundamentals. Even though CEO pay isn't technically a key concern, it could serve as an indication as to how board members align incentives and how they think about setting policies. These issues directly impacts how GMR makes money, and factors impacting your return on investment. To research more about these fundamentals, I recommend you check out our simple infographic report on GMR's financial metrics.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.