Simon Noon took the helm as Pacifico Minerals Limited’s (ASX:PMY) CEO and grew market cap to AU$9.65M recently. 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 Noon’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 Pacifico Minerals

What has been the trend in PMY’s earnings?

Profitability of a company is a strong indication of PMY’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Noon’s performance. In the past year, PMY released negative earnings of -AU$1.37M . But this is an improvement on prior year’s loss of -AU$1.75M, which may signal a turnaround since PMY has been loss-making for the past five years, on average, with an EPS of -AU$0.0037. Given earnings are moving the right way, CEO pay should represent Noon’s valued-adding activities. Over the same period Noon’s total remuneration grew by a mere 1.92% to AU$200.89K.

Is PMY’s CEO overpaid relative to the market?

While one size does not fit all, since remuneration should account for specific factors of the company and market, we can estimate a high-level yardstick to see if PMY is an outlier. This exercise can help direct shareholders to ask the right question about Noon’s incentive alignment. Normally, an Australian small-cap is worth around $140M, generates earnings of $10M, and pays its CEO at roughly $500,000 per annum. Typically I would use earnings and market cap to account for variations in performance, however, PMY’s negative earnings reduces the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Noon is remunerated sensibly relative to peers. Overall, though PMY is unprofitable, it seems like the CEO’s pay is reflective of the appropriate level.

Next Steps:

You can breathe easy knowing that shareholder funds aren’t being used to overpay PMY’s CEO. However, on the flipside, you should ask whether Noon is appropriately remunerated on the basis of retention. Its important for shareholders to be active in voting governance decisions, as board members are only representatives of investors’ voices. If you have not done so already, I highly recommend you to complete your research by taking a look at the following: