Is Goldquest Mining Corp’s (CVE:GQC) CEO Pay Fair?

Leading Goldquest Mining Corp (TSXV:GQC) as the CEO, Bill Fisher took the company to a valuation of CA$109.38M. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. Today we will assess Fisher’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 Goldquest Mining

Did Fisher create value?

Earnings is a powerful indication of GQC’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Fisher’s performance in the past year. Over the last year GQC delivered negative earnings of -CA$11.2M , which is a further decline from prior year’s loss of -CA$7.4M. Additionally, on average, GQC has been loss-making in the past, with a 5-year average EPS of -CA$0.04. In the situation of negative earnings, the company may be going through a period of reinvestment and growth, or it can be a sign of some headwind. Regardless, CEO compensation should mirror the current condition of the business. In the most recent report, Fisher’s total compensation increased by 6.59% to CA$859,554.
TSXV:GQC Income Statement Jan 16th 18
TSXV:GQC Income Statement Jan 16th 18

Is GQC’s CEO overpaid relative to the market?

Though there is no cookie-cutter approach, since remuneration should account for specific factors of the company and market, we can evaluate a high-level base line to see if GQC deviates substantially from its peers. This exercise can help shareholders ask the right question about Fisher’s incentive alignment. Typically, a Canadian small-cap is worth around $345M, produces earnings of $24M, and remunerates its CEO circa $770,000 per year. Usually I would look at market cap and earnings as a proxy for performance, however, GQC’s negative earnings lower the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Fisher’s pay exceeds its peer group.

What this means for you:

Are you a shareholder? The next CEO pay bump should be questioned by shareholders at AGM voting. Given that Fisher’s pay is already above the bracket of other CEOs of similar companies, what justifies a further increase? Although CEO pay is not the be all and end all, it serves as a signal as to whether the board’s and management’s incentives are aligned with the rest of the shareholders. To find out more about GQC’s governance, look through our infographic report of the company’s board and management.

Are you a potential investor? Whether Fisher is over or underpaid should not be a deciding factor whether or not you invest in GQC. 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 GQC is placed financially. To research more about these fundamentals, I recommend you check out our simple infographic report on GQC’s financial metrics.

PS. If you are not interested in Goldquest Mining anymore, you can use our free platform to see my list of over 50 sustainable companies producing great returns.