Bernard Tourillon took the reins as CEO of HPQ-Silicon Resources Inc's (TSXV:HPQ) and grew market cap to CA$17.60M recently. 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 Tourillon’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. View our latest analysis for HPQ-Silicon Resources
Advertisement
What has been the trend in HPQ's earnings?
Earnings is a powerful indication of HPQ's ability to invest shareholders' funds and generate returns. Therefore I will use earnings as a proxy of Tourillon's performance in the past year. In the past year, HPQ produced negative earnings of -CA$2.62M , which is a further decline from prior year's loss of -CA$2.59M. Furthermore, on average, HPQ has been loss-making in the past, with a 5-year average EPS of -CA$0.018. In the situation 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 echo the current state of the business. From the latest financial statments, Tourillon's total remuneration increased over two-fold, reaching CA$392.80K . TSXV:HPQ Income Statement May 24th 18
Is HPQ overpaying the CEO?
Despite the fact that there is no cookie-cutter approach, as compensation should be tailored to the specific company and market, we can fashion a high-level thresold to see if HPQ is an outlier. This outcome can help direct shareholders to ask the right question about Tourillon’s incentive alignment. Normally, a Canadian small-cap is worth around $345M, creates earnings of $24M, and remunerates its CEO circa $770,000 annually. Normally I would look at market cap and earnings as a proxy for performance, however, HPQ's negative earnings reduces the effectiveness of this method. Given the range of pay for small-cap executives, it seems like Tourillon is being paid within the bounds of reasonableness. Overall, though HPQ is loss-making, it seems like the CEO’s pay is sound.
Next Steps:
In order to determine whether or not you should invest in HPQ, your thesis should be built on fundamentals. Even though CEO pay isn't technically a key concern, it could serve as an indication as to how board members align incentives and how they think about setting policies. These issues directly impacts how HPQ makes money, and factors impacting your return on investment. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
Valuation is complex, but we're here to simplify it.
Discover if HPQ Silicon might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
