Did Marmet create value?Earnings is a powerful indication of ZMD’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Marmet’s performance in the past year. Recently, ZMD delivered negative earnings of -CA$1.31M . However, this is an improvement on prior year’s loss of -CA$1.66M, which may signal a turnaround since ZMD has been loss-making for the past five years, on average, with an EPS of -CA$0.014. As profits are moving up and up, CEO pay should be reflective of Marmet’s hard work. In the same year, Marmet’s total compensation declined by a trivial -0.81%, to CA$225.00K. Furthermore, Marmet’s pay is also made up of 4.96% non-cash elements, which means that variabilities in ZMD’s share price can affect the real level of what the CEO actually receives.
Is ZMD’s CEO overpaid relative to the market?
While one size does not fit all, as remuneration should be tailored to the specific company and market, we can estimate a high-level benchmark to see if ZMD deviates substantially from its peers. This exercise helps investors ask the right question about Marmet’s incentive alignment. Generally, a Canadian small-cap has a value of $345M, generates earnings of $24M, and pays its CEO at roughly $770,000 annually. Usually I’d use market cap and profit as factors determining performance, however, ZMD’s negative earnings lower the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Marmet is paid aptly compared to those in similar-sized companies. On the whole, although ZMD is unprofitable, it seems like the CEO’s pay is appropriate.
My conclusion is that Marmet is not being overpaid. But your role as a shareholder should not end here. As above, this is a relatively simplistic calculation using high-level benchmarket. Proactive shareholders should question their representatives (i.e. the board of directors) how they think about the CEO’s incentive alignment with shareholders and how they balance this with retention and reward. If you have not done so already, I urge you to complete your research by taking a look at the following:
- Governance: To find out more about ZMD’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 ZMD? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!