Johnson Joseph is the CEO of Peak Positioning Technologies Inc (CNSX:PKK), which has recently grown to a market capitalization of CA$30.14m. 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. I will break down Joseph’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.
Did Joseph create value?Profitability of a company is a strong indication of PKK’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Joseph’s performance. Recently, PKK delivered negative earnings of -CA$3.97m , which is a further decline from prior year’s loss of -CA$3.42m. Furthermore, on average, PKK has been loss-making in the past, with a 5-year average EPS of -CA$0.017. In the situation of negative earnings, the company may be facing a period of reinvestment and growth, or it can be a signal of some headwind. In any case, CEO compensation should emulate the current state of the business. In the most recent financial report, Joseph’s total compensation rose by 46.57% to CA$308.80k. Moreover, Joseph’s pay is also made up of 61.03% non-cash elements, which means that fluctuations in PKK’s share price can impact the true level of what the CEO actually takes home at the end of the day.
What’s a reasonable CEO compensation?Despite the fact that there is no cookie-cutter approach, since remuneration should be tailored to the specific company and market, we can evaluate a high-level benchmark to see if PKK deviates substantially from its peers. This exercise can help shareholders ask the right question about Joseph’s incentive alignment. Normally, a Canadian small-cap has a value of $345M, generates earnings of $24M, and remunerates its CEO circa $770,000 per year. Normally I’d use market cap and profit as factors determining performance, however, PKK’s negative earnings lower the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Joseph is paid aptly compared to those in similar-sized companies. On the whole, although PKK is unprofitable, it seems like the CEO’s pay is sound.
You can breathe easy knowing that shareholder funds aren’t being used to overpay PKK’s CEO. However, on the flipside, you should ask whether Joseph 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 PKK’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 PKK? 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.