Should You Worry About Golden Dawn Minerals Inc’s (CVE:GOM) CEO Salary Level?

Wolf Wiese took the reins as CEO of Golden Dawn Minerals Inc’s (TSXV:GOM) and grew market cap to CA$25.33M recently. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. I will break down Wiese’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. See our latest analysis for Golden Dawn Minerals

Did Wiese create value?

Profitability of a company is a strong indication of GOM’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Wiese’s performance. Recently, GOM released negative earnings of -CA$5.23M , which is a further decline from prior year’s loss of -CA$4.09M. Furthermore, on average, GOM has been loss-making in the past, with a 5-year average EPS of -CA$0.13. During times of unprofitability the company may be incurring a period of reinvestment and growth, or it can be a signal of some headwind. In any event, CEO compensation should represent the current state of the business. In the most recent report, Wiese’s total compensation remained stable at CA$288.00K since the previous year.
TSXV:GOM Income Statement Apr 3rd 18
TSXV:GOM Income Statement Apr 3rd 18

What’s a reasonable CEO compensation?

Despite the fact that there is no cookie-cutter approach, since compensation should be tailored to the specific company and market, we can gauge a high-level yardstick to see if GOM is an outlier. This outcome can help shareholders ask the right question about Wiese’s incentive alignment. On average, a Canadian small-cap is worth around $345M, creates earnings of $24M, and pays its CEO at roughly $770,000 per annum. Typically I’d use market cap and profit as factors determining performance, however, GOM’s negative earnings reduces the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Wiese is remunerated sensibly relative to peers. Putting everything together, although GOM is unprofitable, it seems like the CEO’s pay is reflective of the appropriate level.

Next Steps:

Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in GOM, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. 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 GOM’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 GOM? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!