Peter Gommerud is the CEO of Bandera Gold Ltd (TSXV:BGL), which has recently grown to a market capitalization of CA$588.12K. 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 Gommerud’s pay and compare this to the company’s performance over the same period, as well as measure it against other Canadian CEOs leading companies of similar size and profitability. See our latest analysis for Bandera Gold
What has been the trend in BGL’s earnings?
Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. In the past year, BGL released an earnings of CA$0.1M , moving BGL from negative territory of -CA$5.2M in the prior year to profitability. This could signal a turnaround given that BGL has been loss-making for the past five years, on average, with an EPS of -CA$0.27. Given earnings are moving the right way, CEO pay should be reflective of Gommerud’s hard work. Over the same period Gommerud’s total compensation rose by 100.00% to CA$94,000.
TSXV:BGL Past Future Earnings Jan 9th 18
What’s a reasonable CEO compensation?
While no standard benchmark exists, since remuneration should be tailored to the specific company and market, we can gauge a high-level base line to see if BGL deviates substantially from its peers. This outcome can help shareholders ask the right question about Gommerud’s incentive alignment. Generally, a Canadian small-cap has a value of $345M, generates earnings of $24M, and pays its CEO at roughly $770,000 per annum. Based on the size of BGL in terms of market cap, as well as its performance, using earnings as a proxy, it appears that Gommerud is compensated similar to other Canadian CEOs of small-caps, on average. This could mean Gommerud is paid a suitable level.
What this means for you:
Are you a shareholder? My conclusion is that Gommerud 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 BGL’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in BGL, 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. To research more about these fundamentals, I recommend you check out our simple infographic report on BGL’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.