Should You Worry About Palamina Corp’s (CVE:PA) CEO Pay?

Andrew Thomson is the CEO of Palamina Corp (TSXV:PA), which has recently grown to a market capitalization of CA$11.66M. 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 Thomson’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 Palamina

What has been the trend in PA’s earnings?

Profitability of a company is a strong indication of PA’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Thomson’s performance. Most recently, PA delivered negative earnings of -CA$1.70M , which is a further decline from prior year’s loss of -CA$1.01M. Moreover, on average, PA has been loss-making in the past, with a 5-year average EPS of -CA$0.049. In the situation of unprofitability the company may be incurring a period of reinvestment and growth, or it can be a signal of some headwind. In any case, CEO compensation should represent the current condition of the business. From the latest report, Thomson’s total remuneration dropped by -18.60%, to CA$185.00K. Furthermore, Thomson’s pay is also made up of 42.56% non-cash elements, which means that fluctuations in PA’s share price can impact the actual level of what the CEO actually takes home at the end of the day.
TSXV:PA Income Statement May 25th 18
TSXV:PA Income Statement May 25th 18

Is PA overpaying the CEO?

While no standard benchmark exists, as remuneration should account for specific factors of the company and market, we can gauge a high-level base line to see if PA deviates substantially from its peers. This exercise can help direct shareholders to ask the right question about Thomson’s incentive alignment. Normally, a Canadian small-cap is worth around $345M, produces earnings of $24M, and pays its CEO at roughly $770,000 per annum. Normally I would use earnings and market cap to account for variations in performance, however, PA’s negative earnings reduces 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. On the whole, although PA is unprofitable, it seems like the CEO’s pay is sound.

Next Steps:

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. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

  1. Governance: To find out more about PA’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 PA? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!