TSXV:RCG Past Future Earnings Dec 13th 17
Is RCG’s CEO overpaid relative to the market?
Though there is no cookie-cutter approach, since remuneration should be tailored to the specific company and market, we can evaluate a high-level yardstick to see if RCG deviates substantially from its peers. This exercise can help shareholders ask the right question about Young’s incentive alignment. On average, a Canadian small-cap has a value of $345M, produces earnings of $24M, and pays its CEO at roughly $770,000 per year. Typically I would look at market cap and earnings as a proxy for performance, however, RCG’s negative earnings lower the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Young is being paid within the bounds of reasonableness. Overall, although RCG is loss-making, it seems like the CEO’s pay is appropriate.
What this means for you:
Are you a shareholder? My conclusion is that Young is not being overpaid. But your role as a shareholder should not end here. As above, this is a relatively simplistic calculation using high-level benchmarket. Proactive shareholders should question their representatives (i.e. the board of directors) how they think about the CEO’s incentive alignment with shareholders and how they balance this with retention and reward. To find out more about RCG’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? Although remuneration can be a useful gauge of whether Young’s incentives are well-aligned with RCG’s shareholders, it is certainly not sufficient to base your investment decision solely on this factor. Whether the company is fundamentally strong depends on RCG’s financial health and its future outlook. To research more about these fundamentals, I recommend you check out our simple infographic report on RCG’s financial metrics.
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The author is an independent contributor and at the time of publication had no position in the stocks mentioned.