Simon Slesarewich took the reins as CEO of Metallica Minerals Limited’s (ASX:MLM) and grew market cap to AU$14.83M recently. 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. I will break down Slesarewich’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 Metallica Minerals
What has been the trend in MLM’s earnings?
Profitability of a company is a strong indication of MLM’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Slesarewich’s performance. In the past year, MLM delivered a profit of AU$2.84M , moving MLM from negative territory of -AU$809.96K in the prior year to profitability. This could signal a turnaround given that MLM has been loss-making for the past five years, on average, with an EPS of -AU$0.064. Given earnings are moving the right way, CEO pay should represent Slesarewich’s hard work. During the same period, Slesarewich’s total remuneration fell by -8.60%, to AU$315.75K. In addition to this, Slesarewich’s pay is also made up of 28.20% non-cash elements, which means that variabilities in MLM’s share price can move the real level of what the CEO actually receives.
Is MLM overpaying the CEO?
Though one size does not fit all, since compensation should account for specific factors of the company and market, we can evaluate a high-level base line to see if MLM is an outlier. This exercise can help direct shareholders to ask the right question about Slesarewich’s incentive alignment. Generally, an Australian small-cap has a value of $140M, creates earnings of $10M, and pays its CEO circa $500,000 per year. Taking into account MLM’s size and performance, in terms of market cap and earnings, it appears that Slesarewich is compensated similar to other comparable Australian CEOs of profitable small-caps. This could mean Slesarewich is paid a suitable level.
Next Steps:
Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in MLM, 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: