Yahoo Finance Is Southern Cross Exploration NL’s (ASX:SXX) CEO Salary Justified?
Stephen Baghdadi took the helm as Southern Cross Exploration NL’s (ASX:SXX) CEO and grew market cap to AU$11.31M 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 Baghdadi’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 Southern Cross Exploration
Did Baghdadi create value?
Profitability of a company is a strong indication of SXX’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Baghdadi’s performance. Most recently, SXX produced negative earnings of -AU$2.57M , which is a further decline from prior year’s loss of -AU$2.34M. Furthermore, on average, SXX has been loss-making in the past, with a 5-year average EPS of -AU$0.0076. 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. In any event, CEO compensation should represent the current condition of the business. From the latest report, Baghdadi’s total compensation rose by 5.26% to AU$500.00K. Although I couldn’t find information on the breakdown of Baghdadi’s pay, if some portion were non-cash items such as stocks and options, then fluctuations in SXX’s share price can affect the true level of what the CEO actually receives.
Is SXX overpaying the CEO?
While no standard benchmark exists, as remuneration should be tailored to the specific company and market, we can fashion a high-level benchmark to see if SXX is an outlier. This outcome can help direct shareholders to ask the right question about Baghdadi’s incentive alignment. On average, an Australian small-cap is worth around $140M, generates earnings of $10M, and remunerates its CEO circa $500,000 annually. Normally I’d use market cap and profit as factors determining performance, however, SXX’s negative earnings lower the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Baghdadi’s pay is above other similar companies.
What this means for you:
My analysis shows that Baghdadi may be paid above the appropriate level, based on the size of SXX and its recent year’s earnings performance. The question to answer now is whether this level of pay is justified. There are most likely other factors I have not account for, but in any case, this outcome should provide a basis for you as shareholders, to question the board’s decision to increase CEO pay in the future. 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 SXX’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 SXX? 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.
