Is New Concept Energy Inc’s (NYSEMKT:GBR) CEO Pay Justified?

Leading New Concept Energy Inc (NYSEMKT:GBR) as the CEO, Gene Bertcher took the company to a valuation of US$18.97m. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. 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. Recently, GBR delivered negative earnings of -US$3.20m , compared to the previous year’s positive earnings. Though, on average, GBR has been loss-making in the past, with a 5-year average EPS of -US$1.27. During times of unprofitability the company may be facing a period of reinvestment and growth, or it can be a sign of some headwind. Regardless, CEO compensation should echo the current condition of the business. In the latest financial report, Bertcher’s total compensation increased by 5.31% to US$56.50k.
AMEX:GBR Income Statement July 4th 18
AMEX:GBR Income Statement July 4th 18

What’s a reasonable CEO compensation?

Even though one size does not fit all, since remuneration should account for specific factors of the company and market, we can evaluate a high-level thresold to see if GBR deviates substantially from its peers. This outcome can help shareholders ask the right question about Bertcher’s incentive alignment. Normally, a US small-cap is worth around $1B, produces earnings of $96M, and remunerates its CEO circa $2.7M annually. Usually I would use earnings and market cap to account for variations in performance, however, GBR’s negative earnings lower the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Bertcher is paid aptly compared to those in similar-sized companies. On the whole, though GBR is loss-making, it seems like the CEO’s pay is appropriate.

Next Steps:

Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in GBR, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. 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!