Does Signature Resources Ltd’s (CVE:SGU) CEO Pay Matter?

Walter Hanych is the CEO of Signature Resources Ltd (TSXV:SGU), which has recently grown to a market capitalization of CA$5.25M. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. 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 Hanych’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 Signature Resources

What has SGU’s performance been like?

SGU 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, SGU delivered negative earnings of -CA$424.74K , which is a further decline from prior year’s loss of -CA$294.35K. Furthermore, on average, SGU has been loss-making in the past, with a 5-year average EPS of -CA$0.018. In the situation of unprofitability 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 represent the current condition of the business. From the latest financial statments, Hanych’s total remuneration rose by 55.08% to CA$93.19K.
TSXV:SGU Income Statement Mar 15th 18
TSXV:SGU Income Statement Mar 15th 18

Is SGU overpaying the CEO?

Though there is no cookie-cutter approach, as remuneration should be tailored to the specific company and market, we can estimate a high-level thresold to see if SGU is an outlier. This exercise can help shareholders ask the right question about Hanych’s incentive alignment. Typically, a Canadian small-cap is worth around $345M, creates earnings of $24M, and remunerates its CEO circa $770,000 annually. Usually I would look at market cap and earnings as a proxy for performance, however, SGU’s negative earnings reduces the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Hanych is remunerated sensibly relative to peers. Putting everything together, even though SGU is unprofitable, it seems like the CEO’s pay is fair.

Next Steps:

Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in SGU, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. If you have not done so already, I urge you to complete your research by taking a look at the following:

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