Does Silver Lake Resources Limited's (ASX:SLR) CEO Pay Compare Well With Peers?

Luke Tonkin took the reins as CEO of Silver Lake Resources Limited's (ASX:SLR) and grew market cap to AU$246.3m recently. 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. Today we will assess Tonkin’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.

See our latest analysis for Silver Lake Resources

What has SLR's performance been like?

SLR 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. Recently, SLR produced an earnings of AU$16.2m , which is an increase of 697% from its previous year's earnings of AU$2.0m. This could be a sign of a successful turnaround since SLR has not always been profitable, given its average EPS of -AU$0.18 over the past five years. Given earnings are moving the right way, CEO pay should represent Tonkin's valued-adding activities. During the same period, Tonkin's total compensation fell by a marginal -4.8%, to AU$1.1m. Furthermore, Tonkin's pay is also made up of 16.17% non-cash elements, which means that fluxes in SLR's share price can affect the actual level of what the CEO actually receives.

Is SLR's CEO overpaid relative to the market?

Though one size does not fit all, since remuneration should account for specific factors of the company and market, we can determine a high-level yardstick to see if SLR deviates substantially from its peers. This exercise can help direct shareholders to ask the right question about Tonkin’s incentive alignment. On average, an Australian small-cap is worth around $140M, produces earnings of $10M, and remunerates its CEO at roughly $500,000 annually. Accounting for SLR's size and performance, in terms of market cap and earnings, it seems that Tonkin is paid on a similar level to other Australian CEOs of small-caps, on average. This may mean that SLR is appropriately compensating its CEO.

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 Tonkin 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 SLR'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 SLR? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

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.