What has been the trend in ATL’s earnings?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 released negative earnings of -CA$203.2M , which is a further decline from prior year’s loss of -CA$34.1M. Moreover, on average, ATL has been loss-making in the past, with a 5-year average EPS of -CA$0.07. In the situation of negative earnings, the company may be incurring a period of reinvestment and growth, or it can be a sign of some headwind. In any case, CEO compensation should emulate the current condition of the business. In the most recent report, Motaung’s total remuneration dropped by a meaningful rate of -20.62%, to CA$510,312. Moreover, Motaung’s pay is also made up of 8.65% non-cash elements, which means that fluctuations in ATL’s share price can move the actual level of what the CEO actually collects at the end of the year.
What’s a reasonable CEO compensation?
Even though there is no cookie-cutter approach, as compensation should be tailored to the specific company and market, we can determine a high-level base line to see if ATL deviates substantially from its peers. This exercise helps investors ask the right question about Motaung’s incentive alignment. Normally, a Canadian small-cap has a value of $345M, produces earnings of $24M, and remunerates its CEO circa $770,000 per year. Usually I would use earnings and market cap to account for variations in performance, however, ATL’s negative earnings reduces the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Motaung is paid aptly compared to those in similar-sized companies. Overall, even though ATL is unprofitable, it seems like the CEO’s pay is appropriate.
What this means for you:
Are you a shareholder? 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. To find out more about ATL’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? Whether Motaung is over or underpaid should not be a deciding factor whether or not you invest in ATL. However, the way the company is governed and policies, such as remuneration, are structured, are important considerations for an investor. The best place to start is to understand how well ATL is placed financially. To research more about these fundamentals, I recommend you check out our simple infographic report on ATL’s financial metrics.PS. If you are not interested in Atlatsa Resources anymore, you can use our free platform to see my list of over 50 sustainable companies producing great returns.