Did Motaung create value?Earnings is a powerful indication of ATL’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Motaung’s performance in the past year. Most recently, ATL produced negative earnings of -CA$198.63M , which is a further decline from prior year’s loss of -CA$46.47M. Additionally, on average, ATL has been loss-making in the past, with a 5-year average EPS of -CA$0.077. During times of negative earnings, the company may be going through a period of reinvestment and growth, or it can be a signal of some headwind. In any case, CEO compensation should represent the current condition of the business. In the most recent report, Motaung’s total compensation fell by a meaningful rate of -20.62%, to CA$510.31K. Moreover, Motaung’s pay is also made up of 11.64% non-cash elements, which means that fluctuations in ATL’s share price can affect the real level of what the CEO actually receives.
What’s a reasonable CEO compensation?
Though one size does not fit all, as remuneration should account for specific factors of the company and market, we can estimate a high-level thresold to see if ATL deviates substantially from its peers. This outcome can help direct shareholders to ask the right question about Motaung’s incentive alignment. On average, a Canadian small-cap is worth around $345M, generates earnings of $24M, and remunerates its CEO at roughly $770,000 per annum. Normally I would use earnings and market cap to account for variations in performance, however, ATL’s negative earnings lower the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Motaung is paid aptly compared to those in similar-sized companies. Overall, although ATL is loss-making, it seems like the CEO’s pay is sound.
In the upcoming year’s AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose an executive pay raise. Will this raise take Motaung’s pay beyond the bound of reasonableness, or will it help in retaining the talented executive? Being proactive in governance decisions is a key part to investing, and collectively, investors can make a big difference. 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 ATL’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 ATL? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!