Is Bengal Energy Ltd (TSE:BNG) Overpaying Its CEO?

Chayan Chakrabarty took the helm as Bengal Energy Ltd’s (TSE:BNG) CEO and grew market cap to CA$10.74m recently. 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. Today we will assess Chakrabarty’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.

Check out our latest analysis for Bengal Energy

What has been the trend in BNG’s earnings?

Profitability of a company is a strong indication of BNG’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Chakrabarty’s performance. Most recently, BNG produced negative earnings of -CA$12.27m , which is a further decline from prior year’s loss of -CA$2.77m. Furthermore, on average, BNG has been loss-making in the past, with a 5-year average EPS of -CA$0.068. In the situation of unprofitability the company may be facing a period of reinvestment and growth, or it can be an indication of some headwind. Regardless, CEO compensation should represent the current condition of the business. From the latest financial statments, Chakrabarty’s total compensation fell by -7.97%, to CA$230.00k.
TSX:BNG Income Statement Export August 15th 18
TSX:BNG Income Statement Export August 15th 18

Is BNG’s CEO overpaid relative to the market?

Despite the fact that there is no cookie-cutter approach, as compensation should account for specific factors of the company and market, we can fashion a high-level benchmark to see if BNG deviates substantially from its peers. This exercise can help direct shareholders to ask the right question about Chakrabarty’s incentive alignment. On average, a Canadian small-cap has a value of $345M, produces earnings of $24M, and remunerates its CEO circa $770,000 per year. Typically I would look at market cap and earnings as a proxy for performance, however, BNG’s negative earnings lower the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Chakrabarty is being paid within the bounds of reasonableness. Overall, although BNG is loss-making, it seems like the CEO’s pay is fair.

Next Steps:

Hopefully this article has given you insight on how shareholders should think about BNG’s governance policies such as CEO pay. As an investor, you have the right to understand how the board thinks about management incentives, and also the right to vote for and against substantial CEO pay changes. Governance is a big factor in investing, and I encourage you to dig deeper into those that represent your voice on the board. 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 BNG’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 BNG? 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.