What has been the trend in SKE’s earnings?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, SKE delivered negative earnings of -CA$8.39M . However, this is an improvement on prior year’s loss of -CA$12.83M, which may signal a turnaround since SKE has been loss-making for the past five years, on average, with an EPS of -CA$0.31. As profits are moving up and up, CEO pay should be reflective of Coles’s valued-adding activities. In the same year, Coles’s total compensation increased over two-fold, reaching CA$287.01K , though from a small number.
Is SKE’s CEO overpaid relative to the market?
While one size does not fit all, as compensation should account for specific factors of the company and market, we can evaluate a high-level thresold to see if SKE deviates substantially from its peers. This outcome can help direct shareholders to ask the right question about Coles’s incentive alignment. On average, a Canadian small-cap is worth around $345M, produces earnings of $24M, and remunerates its CEO at roughly $770,000 per year. Normally I would use earnings and market cap to account for variations in performance, however, SKE’s negative earnings reduces the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Coles is being paid within the bounds of reasonableness. Overall, even though SKE is loss-making, it seems like the CEO’s pay is sound.
My conclusion is that Coles is not being overpaid. But your role as a shareholder should not end here. As above, this is a relatively simplistic calculation using high-level benchmarket. Proactive shareholders should question their representatives (i.e. the board of directors) how they think about the CEO’s incentive alignment with shareholders and how they balance this with retention and reward. 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 SKE’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 SKE? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!