Joe Salomon is the CEO of Oilex Ltd (ASX:OEX), which has recently grown to a market capitalization of AU$7.50M. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. Today we will assess Salomon’s pay and compare this to the company’s performance over the same period, as well as measure it against other Australian CEOs leading companies of similar size and profitability. See our latest analysis for Oilex
What has been the trend in OEX’s earnings?
OEX 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. Most recently, OEX delivered negative earnings of -AU$3.66M . However, this is an improvement on prior year’s loss of -AU$16.09M, which may signal a turnaround since OEX has been loss-making for the past five years, on average, with an EPS of -AU$0.025. Since earnings are heading towards the right direction, CEO pay should echo Salomon’s value creation for shareholders. During the same period, Salomon’s total remuneration increased by 39.07% to AU$329.53K.
Is OEX’s CEO overpaid relative to the market?
Despite the fact that no standard benchmark exists, as remuneration should be tailored to the specific company and market, we can determine a high-level yardstick to see if OEX is an outlier. This outcome helps investors ask the right question about Salomon’s incentive alignment. Normally, an Australian small-cap is worth around $140M, produces earnings of $10M, and remunerates its CEO at roughly $500,000 per annum. Typically I would use earnings and market cap to account for variations in performance, however, OEX’s negative earnings lower the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Salomon is being paid within the bounds of reasonableness. Overall, though OEX is unprofitable, it seems like the CEO’s pay is fair.
Next Steps:
Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in OEX, 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 urge you to complete your research by taking a look at the following: