How Much Did Chinook Energy Inc’s (TSE:CKE) CEO Pocket Last Year?

Walter Vrataric took the reins as CEO of Chinook Energy Inc’s (TSX:CKE) and grew market cap to CA$45.83M recently. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. Today we will assess Vrataric’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. See our latest analysis for Chinook Energy

What has CKE’s performance been like?

Earnings is a powerful indication of CKE’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Vrataric’s performance in the past year. Over the last year CKE delivered negative earnings of -CA$16.91M . However, this is an improvement on prior year’s loss of -CA$54.77M, which may signal a turnaround since CKE has been loss-making for the past five years, on average, with an EPS of -CA$0.25. As profits are moving up and up, CEO pay should mirror Vrataric’s valued-adding activities. During this period Vrataric’s total compensation dropped by a non-trivial rate of -43.14%, to CA$314.41K. Moreover, Vrataric’s pay is also made up of 44.64% non-cash elements, which means that variabilities in CKE’s share price can move the true level of what the CEO actually receives.
TSX:CKE Past Future Earnings May 7th 18
TSX:CKE Past Future Earnings May 7th 18

Is CKE overpaying the CEO?

Though no standard benchmark exists, as remuneration should be tailored to the specific company and market, we can determine a high-level base line to see if CKE is an outlier. This exercise can help shareholders ask the right question about Vrataric’s incentive alignment. On average, a Canadian small-cap is worth around $345M, produces earnings of $24M, and remunerates its CEO at roughly $770,000 per annum. Typically I’d use market cap and profit as factors determining performance, however, CKE’s negative earnings reduces the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Vrataric is paid aptly compared to those in similar-sized companies. On the whole, although CKE is unprofitable, it seems like the CEO’s pay is sound.

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