In This Article:
Todd Hibberd is the CEO of White Cliff Minerals Limited (ASX:WCN), which has recently grown to a market capitalization of AU$13.28M. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. 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 Hibberd’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. Check out our latest analysis for White Cliff Minerals
What has been the trend in WCN’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. Over the last year WCN released negative earnings of -AU$4.37M , which is a further decline from prior year’s loss of -AU$3.95M. Furthermore, on average, WCN has been loss-making in the past, with a 5-year average EPS of -AU$0.024. During times of negative earnings, the company may be going through a period of reinvestment and growth, or it can be a signal of some headwind. Regardless, CEO compensation should echo the current condition of the business. In the most recent financial report, Hibberd’s total remuneration increased by a mere 2.74% to AU$297.15K. In addition to this, Hibberd’s pay is also made up of 4.10% non-cash elements, which means that fluxes in WCN’s share price can move the actual level of what the CEO actually receives.
Is WCN’s CEO overpaid relative to the market?
Even though no standard benchmark exists, since remuneration should account for specific factors of the company and market, we can estimate a high-level benchmark to see if WCN deviates substantially from its peers. This outcome helps investors ask the right question about Hibberd’s incentive alignment. Normally, an Australian small-cap is worth around $140M, creates earnings of $10M, and remunerates its CEO at roughly $500,000 per year. Typically I’d use market cap and profit as factors determining performance, however, WCN’s negative earnings reduces the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Hibberd is remunerated sensibly relative to peers. Putting everything together, although WCN is loss-making, it seems like the CEO’s pay is reflective of the appropriate level.
Next Steps:
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 Hibberd 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. If you have not done so already, I highly recommend you to complete your research by taking a look at the following: