Is Para Resources Inc (TSXV:PBR) Overpaying Its CEO?

More

Is PBR overpaying the CEO?

Despite the fact that no standard benchmark exists, since remuneration should be tailored to the specific company and market, we can estimate a high-level benchmark to see if PBR deviates substantially from its peers. This exercise can help shareholders ask the right question about Hampson’s incentive alignment. Generally, a Canadian small-cap is worth around $345M, generates earnings of $24M, and remunerates its CEO circa $770,000 per annum. Typically I would look at market cap and earnings as a proxy for performance, however, PBR’s negative earnings reduces the effectiveness of this method. Given the range of pay for small-cap executives, it seems like Hampson is remunerated sensibly relative to peers. On the whole, though PBR 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? My conclusion is that Hampson 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 PBR’s governance, look through our infographic report of the company’s board and management.

Are you a potential investor? Whether Hampson is over or underpaid should not be a deciding factor whether or not you invest in PBR. However, the way the company is governed and policies, such as remuneration, are structured, are important considerations for an investor. The best place to start is to understand how well PBR is placed financially. To research more about these fundamentals, I recommend you check out our simple infographic report on PBR’s financial metrics.