Ingrid Hibbard took the reins as CEO of Pelangio Exploration Inc’s (CVE:PX) and grew market cap to CA$4.11m recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. Today we will assess Hibbard’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.
What has been the trend in PX’s earnings?Earnings is a powerful indication of PX’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Hibbard’s performance in the past year. In the past year, PX produced negative earnings of -CA$1.12m , which is a further decline from prior year’s loss of -CA$644.83k. Moreover, on average, PX has been loss-making in the past, with a 5-year average EPS of -CA$0.12. In the situation of negative earnings, the company may be going through a period of reinvestment and growth, or it can be an indication of some headwind. In any case, CEO compensation should emulate the current state of the business. From the latest financial statments, Hibbard’s total remuneration fell by -8.43%, to CA$85.00k. In addition to this, Hibbard’s pay is also made up of non-cash items, which means that fluctuations in PX’s share price can impact the true level of what the CEO actually receives.
What’s a reasonable CEO compensation?Even though there is no cookie-cutter approach, since compensation should account for specific factors of the company and market, we can determine a high-level thresold to see if PX deviates substantially from its peers. This exercise can help shareholders ask the right question about Hibbard’s incentive alignment. Normally, a Canadian small-cap is worth around $345M, produces earnings of $24M, and pays its CEO circa $770,000 annually. Usually I’d use market cap and profit as factors determining performance, however, PX’s negative earnings reduces the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Hibbard is being paid within the bounds of reasonableness. Overall, although PX is loss-making, it seems like the CEO’s pay is appropriate.
You can breathe easy knowing that shareholder funds aren’t being used to overpay PX’s CEO. However, on the flipside, you should ask whether Hibbard is appropriately remunerated on the basis of retention. Its important for shareholders to be active in voting governance decisions, as board members are only representatives of investors’ voices. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
- Governance: To find out more about PX’s governance, look through our infographic report of the company’s board and management.
- 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.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of PX? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.