TSXV:SPX Income Statement Dec 9th 17
Is SPX’s CEO overpaid relative to the market?
Despite the fact that no standard benchmark exists, since remuneration should be tailored to the specific company and market, we can fashion a high-level thresold to see if SPX deviates substantially from its peers. This outcome helps investors ask the right question about Cumming’s incentive alignment. Generally, a Canadian small-cap has a value of $345M, creates earnings of $24M, and remunerates its CEO circa $770,000 per annum. Typically I would use earnings and market cap to account for variations in performance, however, SPX’s negative earnings lower the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Cumming is being paid within the bounds of reasonableness. Overall, even though SPX is loss-making, it seems like the CEO’s pay is reflective of the appropriate level.
What this means for you:
Are you a shareholder? CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Is Cumming remunerated appropriately based on other factors we have not covered today? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours. To find out more about SPX’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 Cumming’s pay is above or below peers, the more important factors to look at is SPX’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 SPX’s financial metrics.
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To help readers see pass 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.