What has POL performance been like?POL 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, POL produced negative earnings of -$6.2M . But this is an improvement on prior year’s loss of -$29.7M, which may signal a turnaround since POL has been loss-making for the past five years, on average, with an EPS of -$0.02. As profits are moving up and up, CEO pay should represent Tang’s value creation for shareholders. During this period Tang’s total remuneration dropped by more than half of the prior year’s level, to $1,318,000. Although I couldn’t find information on the composition of Tang’s pay, if some portion were non-cash items such as stocks and options, then fluxes in POL’s share price can affect the real level of what the CEO actually takes home at the end of the day.
Is POL overpaying the CEO?
While there is no cookie-cutter approach, as remuneration should be tailored to the specific company and market, we can gauge a high-level base line to see if POL deviates substantially from its peers. This outcome can help direct shareholders to ask the right question about Tang’s incentive alignment. Normally, a UK small-cap has a value of £696M, produces earnings of £67M, and pays its CEO at roughly £1M per annum. Usually I would look at market cap and earnings as a proxy for performance, however, POL’s negative earnings reduces the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Tang’s pay outstrips those in comparable companies.
What this means for you:
Are you a shareholder? In the upcoming year’s AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose another executive pay raise. Although this analysis is relatively simplified, the fact that Tang’s pay is above its peer group should raise questions as to why this may be the case. To find out more about POL’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? While CEO compensation is a good indication for how well-aligned the company leader is its investors, it is certainly not enough to simply base your investment decision on this metric. Regardless of whether Tang’s pay is above or below peers, the more important factors to look at is POL’s track record of performance and future outlook moving forward. To research more about these fundamentals, I recommend you check out our simple infographic report on POL’s financial metrics.PS. If you are not interested in Polo Resources anymore, you can use our free platform to see my list of over 50 sustainable companies producing great returns.