Does Oracle Energy Corp’s (CVE:OEC) CEO Salary Compare Well With Others?

Leading Oracle Energy Corp (TSXV:OEC) as the CEO, Peter Francis took the company to a valuation of CA$687.50K. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. 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 Francis’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 Oracle Energy

What has been the trend in OEC’s earnings?

Earnings is a powerful indication of OEC’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Francis’s performance in the past year. In the past year, OEC delivered negative earnings of -CA$371.20K . However, this is an improvement on prior year’s loss of -CA$495.99K, which may signal a turnaround since OEC has been loss-making for the past five years, on average, with an EPS of -CA$0.37. As profits are moving up and up, CEO pay should represent Francis’s valued-adding activities. In the same year, Francis’s total remuneration dropped by more than half of the prior year’s level, to CA$12.00K. Although I couldn’t find information on the breakdown of Francis’s pay, if some portion were non-cash items such as stocks and options, then variabilities in OEC’s share price can impact the actual level of what the CEO actually takes home at the end of the day.
TSXV:OEC Past Future Earnings Mar 30th 18
TSXV:OEC Past Future Earnings Mar 30th 18

What’s a reasonable CEO compensation?

While there is no cookie-cutter approach, as remuneration should account for specific factors of the company and market, we can determine a high-level base line to see if OEC deviates substantially from its peers. This outcome helps investors ask the right question about Francis’s incentive alignment. On average, a Canadian small-cap is worth around $345M, creates earnings of $24M, and remunerates its CEO circa $770,000 per annum. Typically I’d use market cap and profit as factors determining performance, however, OEC’s negative earnings lower the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Francis is being paid within the bounds of reasonableness. Putting everything together, even though OEC is loss-making, 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 Francis 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 OEC’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 OEC? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!