What has been the trend in PA’s earnings?PA can create value to shareholders by increasing its profitability, which in turn is reflected into the share price and the investor’s ability to sell their shares at higher capital gains. Most recently, PA delivered negative earnings of -CA$1.6M , which is a further decline from prior year’s loss of -CA$0.9M. Additionally, on average, PA has been loss-making in the past, with a 5-year average EPS of -CA$0.05. During times of unprofitability the company may be facing a period of reinvestment and growth, or it can be a sign of some headwind. In any case, CEO compensation should be reflective of the current condition of the business. In the latest financial report, Thomson’s total remuneration declined by -18.60%, to CA$185,000.
What’s a reasonable CEO compensation?
Even though no standard benchmark exists, as remuneration should be tailored to the specific company and market, we can estimate a high-level benchmark to see if PA deviates substantially from its peers. This outcome can help shareholders ask the right question about Thomson’s incentive alignment. Typically, a Canadian small-cap is worth around $345M, creates earnings of $24M, and pays its CEO at roughly $770,000 annually. Normally I would use earnings and market cap to account for variations in performance, however, PA’s negative earnings lower the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Thomson is paid aptly compared to those in similar-sized companies. Overall, although PA is unprofitable, it seems like the CEO’s pay is sound.
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 Thomson’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 PA’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? In order to determine whether or not you should invest in PA, 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 PA makes money, and factors impacting your return on investment. To research more about these fundamentals, I recommend you check out our simple infographic report on PA’s financial metrics.PS. If you are not interested in Palamina anymore, you can use our free platform to see my list of over 50 sustainable companies producing great returns.