Is Revelo Resources Corp (CVE:RVL) Overpaying Its CEO?

Tim Beale is the CEO of Revelo Resources Corp (TSXV:RVL), which has recently grown to a market capitalization of CA$4.19M. 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. I will break down Beale’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 Revelo Resources

Did Beale create value?

Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. In the past year, RVL produced negative earnings of -CA$2.63M . However, this is an improvement on prior year’s loss of -CA$5.45M, which may signal a turnaround since RVL has been loss-making for the past five years, on average, with an EPS of -CA$0.35. Given earnings are moving the right way, CEO pay should represent Beale's value creation for shareholders. Over the same period Beale's total compensation grew by 14.16% to CA$215.11K. In addition to this, Beale's pay is also made up of 51.69% non-cash elements, which means that variabilities in RVL's share price can impact the true level of what the CEO actually receives.

Is RVL's CEO overpaid relative to the market?

Despite the fact that no standard benchmark exists, as compensation should be tailored to the specific company and market, we can determine a high-level thresold to see if RVL is an outlier. This exercise can help shareholders ask the right question about Beale’s incentive alignment. Typically, a Canadian small-cap has a value of $345M, produces earnings of $24M, and remunerates its CEO at roughly $770,000 per year. Normally I would look at market cap and earnings as a proxy for performance, however, RVL's negative earnings lower the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Beale is remunerated sensibly relative to peers. On the whole, though RVL is unprofitable, it seems like the CEO’s pay is sound.

Next Steps:

CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Is Beale remunerated appropriately based on other factors we have not covered today? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours. 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 RVL'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 RVL? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

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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.