Is Questerre Energy Corporation's (TSE:QEC) CEO Being Overpaid?

By
Simply Wall St
Published
August 21, 2018
TSX:QEC

Michael Binnion is the CEO of Questerre Energy Corporation (TSE:QEC), which has recently grown to a market capitalization of CA$167.27m. 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 Binnion’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.

View our latest analysis for Questerre Energy

What has been the trend in QEC's earnings?

Earnings is a powerful indication of QEC's ability to invest shareholders' funds and generate returns. Therefore I will use earnings as a proxy of Binnion's performance in the past year. Over the last year QEC delivered negative earnings of -CA$20.05m , which is a further decline from prior year's loss of -CA$1.48m. Moreover, on average, QEC has been loss-making in the past, with a 5-year average EPS of -CA$0.09. In the situation of negative earnings, the company may be facing a period of reinvestment and growth, or it can be a signal of some headwind. In any event, CEO compensation should echo the current state of the business. From the latest report, Binnion's total compensation fell by -13.54%, to CA$1.28m. Furthermore, Binnion's pay is also made up of 2.26% non-cash elements, which means that fluxes in QEC's share price can affect the true level of what the CEO actually collects at the end of the year.
TSX:QEC Income Statement Export August 21st 18
TSX:QEC Income Statement Export August 21st 18

Is QEC overpaying the CEO?

While one size does not fit all, as remuneration should be tailored to the specific company and market, we can gauge a high-level yardstick to see if QEC is an outlier. This outcome can help shareholders ask the right question about Binnion’s incentive alignment. Generally, a Canadian small-cap is worth around $345M, produces earnings of $24M, and remunerates its CEO at roughly $770,000 per year. Usually I would use earnings and market cap to account for variations in performance, however, QEC's negative earnings reduces the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Binnion's pay outstrips those in comparable companies.

What this means for you:

My analysis shows that Binnion may be paid above the appropriate level, based on the size of QEC and its recent year's earnings performance. The question to answer now is whether this level of pay is justified. There are most likely other factors I have not account for, but in any case, this outcome should provide a basis for you as shareholders, to question the board's decision to increase CEO pay in the future. If you have not done so already, I urge you to complete your research by taking a look at the following:

  1. Governance: To find out more about QEC'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 QEC? 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.