Yahoo Finance Should You Worry About Edenville Energy Plc’s (LON:EDL) CEO Pay Check?
Rufus Short took the reins as CEO of Edenville Energy Plc’s (AIM:EDL) and grew market cap to UK£4.10M 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 Short’s pay and compare this to the company’s performance over the same period, as well as measure it against other UK CEOs leading companies of similar size and profitability. See our latest analysis for Edenville Energy
What has been the trend in EDL’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. Most recently, EDL produced negative earnings of -UK£1.19M . But this is an improvement on prior year’s loss of -UK£2.99M, which may signal a turnaround since EDL has been loss-making for the past five years, on average, with an EPS of -UK£0.0059. As profits are moving up and up, CEO pay should represent Short’s hard work. During the same period, Short’s total compensation grew by a mere 0.095% to UK£130.12K. Although I couldn’t find information on the composition of Short’s pay, if some portion were non-cash items such as stocks and options, then fluxes in EDL’s share price can impact the actual level of what the CEO actually collects at the end of the year.
Is EDL’s CEO overpaid relative to the market?
Despite the fact that there is no cookie-cutter approach, as remuneration should account for specific factors of the company and market, we can fashion a high-level yardstick to see if EDL deviates substantially from its peers. This exercise can help direct shareholders to ask the right question about Short’s incentive alignment. On average, a UK small-cap is worth around £696M, generates earnings of £67M, and pays its CEO at roughly £1M per year. Typically I would use earnings and market cap to account for variations in performance, however, EDL’s negative earnings lower the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Short is being paid within the bounds of reasonableness. Putting everything together, although EDL is loss-making, it seems like the CEO’s pay is sound.
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 Short 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:
Governance: To find out more about EDL’s governance, look through our infographic report of the company’s board and management.
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.
Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of EDL? 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.
