Does New Concept Energy Inc’s (NYSEMKT:GBR) CEO Salary Reflect Performance?

Gene Bertcher took the helm as New Concept Energy Inc’s (AMEX:GBR) CEO and grew market cap to US$2.89M recently. 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 Bertcher’s pay and compare this to the company’s performance over the same period, as well as measure it against other US CEOs leading companies of similar size and profitability. See our latest analysis for New Concept Energy

What has been the trend in GBR’s earnings?

GBR 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. Over the last year GBR produced negative earnings of -US$3.24M , compared to the previous year’s positive earnings. But on average, GBR has been loss-making in the past, with a 5-year average EPS of -US$1.21. During times of negative earnings, the company may be incurring a period of reinvestment and growth, or it can be an indication of some headwind. In any case, CEO compensation should emulate the current state of the business. In the latest financial report, Bertcher’s total compensation remained stable at US$107.30K since the previous year.
AMEX:GBR Income Statement May 14th 18
AMEX:GBR Income Statement May 14th 18

Is GBR overpaying the CEO?

While one size does not fit all, since compensation should be tailored to the specific company and market, we can estimate a high-level thresold to see if GBR is an outlier. This exercise can help direct shareholders to ask the right question about Bertcher’s incentive alignment. On average, a US small-cap is worth around $1B, creates earnings of $96M, and pays its CEO at roughly $2.7M per year. Usually I would look at market cap and earnings as a proxy for performance, however, GBR’s negative earnings reduces the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Bertcher is being paid within the bounds of reasonableness. Putting everything together, though GBR is unprofitable, it seems like the CEO’s pay is fair.

Next Steps:

In order to determine whether or not you should invest in GBR, your thesis should be built on fundamentals. Even though CEO pay isn’t technically a key concern, it could serve as an indication as to how board members align incentives and how they think about setting policies. These issues directly impacts how GBR makes money, and factors impacting your return on investment. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

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