Leading Holloway Lodging Corporation (TSE:HLC) as the CEO, Felix Seiler took the company to a valuation of CA$108.14m. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. 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 Seiler’s pay and compare this to the company’s performance over the same period, as well as measure it against other Canadian CEOs leading companies of similar size and profitability.
Did Seiler create value?Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Most recently, HLC produced a profit of CA$838.00k , which is a rather significant decline from its prior year’s profit (excluding extraordinary items) of CA$5.90m. Given that HLC has been loss-making in the past, hopefully a wane in profits isn’t a signal of a reverting trend. During times of falling profits, 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 most recent report, Seiler’s total remuneration increased by 18.43% to CA$345.80k. Moreover, Seiler’s pay is also made up of 16.14% non-cash elements, which means that variabilities in HLC’s share price can move the true level of what the CEO actually collects at the end of the year.
Is HLC’s CEO overpaid relative to the market?
Even though no standard benchmark exists, as remuneration should account for specific factors of the company and market, we can fashion a high-level thresold to see if HLC deviates substantially from its peers. This outcome can help direct shareholders to ask the right question about Seiler’s incentive alignment. On average, a Canadian small-cap has a value of $345M, generates earnings of $24M, and pays its CEO at roughly $770,000 annually. Taking into account HLC’s size and performance, in terms of market cap and earnings, it appears that Seiler is compensated similar to other Canadian CEOs of small-caps, on average. This could mean Seiler is paid a suitable level.
In order to determine whether or not you should invest in HLC, 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 HLC makes money, and factors impacting your return on investment. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
- Governance: To find out more about HLC’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 HLC? 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 firstname.lastname@example.org.