Leading Comet Resources Limited (ASX:CRL) as the CEO, Tony Cooper took the company to a valuation of AU$11.30M. 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. I will break down Cooper’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. View our latest analysis for Comet Resources

What has CRL’s performance been like?

Earnings is a powerful indication of CRL’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Cooper’s performance in the past year. Over the last year CRL delivered negative earnings of -AU$1.69M , which is a further decline from prior year’s loss of -AU$927.04K. Additionally, on average, CRL has been loss-making in the past, with a 5-year average EPS of -AU$0.0062. During times of negative earnings, the company may be facing a period of reinvestment and growth, or it can be an indication of some headwind. In any event, CEO compensation should emulate the current condition of the business. In the latest report, Cooper’s total compensation grew by 46.74% to AU$249.90K. Although I couldn’t find information on the breakdown of Cooper’s pay, if some portion were non-cash items such as stocks and options, then fluctuations in CRL’s share price can move the true level of what the CEO actually receives.

Is CRL overpaying the CEO?

Though one size does not fit all, as remuneration should be tailored to the specific company and market, we can estimate a high-level base line to see if CRL is an outlier. This outcome can help shareholders ask the right question about Cooper’s incentive alignment. On average, an Australian small-cap has a value of $140M, generates earnings of $10M, and pays its CEO circa $500,000 per annum. Typically I’d use market cap and profit as factors determining performance, however, CRL’s negative earnings lower the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Cooper is being paid within the bounds of reasonableness. Overall, although CRL is loss-making, it seems like the CEO’s pay is reflective of the appropriate level.

Next Steps:

In the upcoming year’s AGM, shareholders should think about whether another increase in CEO pay is justified, should the board propose an executive pay raise. Will this raise take Cooper’s pay beyond the bound of reasonableness, or will it help in retaining the talented executive? Being proactive in governance decisions is a key part to investing, and collectively, investors can make a big difference. If you have not done so already, I urge you to complete your research by taking a look at the following:

1. Governance: To find out more about CRL’s governance, look through our infographic report of the company’s board and management.

2. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.

3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of CRL? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

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.