Is Zenyatta Ventures Ltd's (CVE:ZEN) CEO Incentives Align With Yours?

Leading Zenyatta Ventures Ltd (TSXV:ZEN) as the CEO, Aubrey Eveleigh took the company to a valuation of CA$43.25M. 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. I will break down Eveleigh’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 Zenyatta Ventures

What has ZEN's performance been like?

Profitability of a company is a strong indication of ZEN's ability to generate returns on shareholders' funds through corporate activities. In this exercise, I will use profits as a proxy for Eveleigh's performance. Over the last year ZEN produced negative earnings of -CA$1.79M . However, this is an improvement on prior year’s loss of -CA$2.91M, which may signal a turnaround since ZEN has been loss-making for the past five years, on average, with an EPS of -CA$0.055. As profits are moving up and up, CEO pay should be reflective of Eveleigh's valued-adding activities. During this period Eveleigh's total compensation dropped by -11.86%, to CA$527.50K.

Is ZEN overpaying the CEO?

While there is no cookie-cutter approach, since remuneration should be tailored to the specific company and market, we can fashion a high-level benchmark to see if ZEN is an outlier. This outcome can help direct shareholders to ask the right question about Eveleigh’s incentive alignment. Generally, a Canadian small-cap is worth around $345M, produces earnings of $24M, and remunerates its CEO at roughly $770,000 annually. Usually I would use earnings and market cap to account for variations in performance, however, ZEN's negative earnings lower the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Eveleigh is paid aptly compared to those in similar-sized companies. On the whole, although ZEN is loss-making, it seems like the CEO’s pay is fair.

Next Steps:

My conclusion is that Eveleigh 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 urge you to complete your research by taking a look at the following:

1. Governance: To find out more about ZEN'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 ZEN? 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.