EXCLUSIVE TO SIGHTLINEU3O8 – We continue to look at the corporate variables and attributes important to investors along the lines of Management, Projects, and Financial Stability. This month we have compiled and presented data surrounding management compensation.
The companies we include operate at a variety of stages, in a variety of jurisdictions, and utilize a variety of talent and resources. For this reason, we found it inappropriate to focus on any specific role or individual. Instead, we compiled the total amounts expended on the top-level management of the company; namely the CxO and Director Level as a whole. Data was obtained from each company’s most recently filed circulars, financial statements and filings.
As always, we stress that these numbers cannot be evaluated in isolation and must be examined in conjunction with all relevant investment attributes. Investors must perform their own due diligence.
Many investors like to see a mix of management compensation paid in equity/options and cash. This serves two purposes by aligning the objectives of management with the objectives of shareholders while at the same time conserving cash.
Average cash compensation for Development Companies came in at approximately $1,300,000 per year ranging from $2.965 million to $288,000. Of the 15 reported companies, total compensation for the top four companies was over six times that of the lowest four companies.
Although Exploration Companies showed a much lower cash compensation spend (approximately $400,000 each) the relative spread between high and low was much larger. The highest spend was $1.355 million for the year while the low end was just over $100,000.
Companies now value, expense and report the issuance of options using the Black–Scholes equation. It determines a value for the options granted using variable such as the underlying stock price, the exercise price of the option, volatility and the expiry date of the option.
The average equity compensation for Development management groups was most recently reported at $840,000 while Exploration management averaged approximately $260,000.
Development numbers were heavily skewed by NexGen Energy most recently reported equity compensation for their management level at just over $7,000,000. By removing the NexGen amount from the calculation, Development Companies paid out an average of only $400,000 last year in equity compensation.
As mentioned at the outset, these compensation numbers – in isolation – are merely raw data. In order to turn them into useful information, they must be evaluated in an appropriate context. For purposes of our UComparables chart, we have ordered the results based on total compensation as a percentage of market capitalization.
There are many ways that investors may wish to digest these results; however, we felt that as a starting point it was beneficial to look at the amount a company spends for its management team relative to the market value/size of the company. This significantly changes the view of what might be appropriate.
As an example, NexGen’s total compensation of nearly $10 million is more than twice the next nearest company. When you look at their spending in light of their market cap, however, they not only spend well below the average but also lower than almost any other Development or Exploration company – a result that is further justified when one considers the size and nature of their world class Arrow project.
On the opposite end of the scale is junior explorer ISO Energy that paid out nearly 30% of its market value to management last year.
Again, we must stress that investors need to take care in evaluating any information pertaining to their investments and that this information is being provided only as a starting point to that evaluation.