Clifton Star Res Inc CFMSF

How do resource company CEOs justify their huge salaries?

[CSIGroup]

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How do resource company CEOs justify their huge salaries?

A tale of two companies

Mineral exploration companies are going through a long period where obtaining financing is extremely difficult or impossible. Stock prices are in the basement in many cases, so raising money is extremely dilutive and damaging to shareholders. With cash in the treasury being so precious, it is necessary for companies to do whatever they can to reduce expenses.

Company 1

We talked to the CEO of one resource company and asked him what he is doing to reduce expenses. He said: “First of all, I am leading by example. I have reduced my salary by 50%. The board of directors has had its compensation reduced to the bare minimum. Second, we have drastically reduced our rent by moving and are now sharing an office. The result is the rental expense is very low and that’s the only reason why I haven’t eliminated it altogether by working out of my home. Third, I have eliminated most expenses for office staff. And finally, I have cut our investor relations budget to almost zero. Nothing I am telling you is that unusual.
If you contact other companies you will find out they are doing the same things.”

Company 2

On the other end of the spectrum, some companies have done nothing to respect their shareholders by reducing expenses. At a time when they should be retrenching, they are instead running their company bank account balances into the ground. Clifton Star Resources (Symbol: CFO on the TSX-V) and in particular its CEO Michel Bouchard is a prime example. The following information was obtained from public sources. Mr. Bouchard is presently making $15,000 per month. He was paid $120,000 as a “performance”(?) bonus while his company’s stock price was losing 90% of its value. His board of directors are getting around $100,000 per year. In 2013, he was paying out $12,000 per month in investor relations fees to outside companies with neither evidence of return on investment nor evidence that these contracts have been terminated.

The company is relentlessly speeding and spending like a runaway train into a December payment deadline of $10 million dollars to option holders on its Duparque, Quebec properties. Mr. Bouchard is putting the company at risk by waiting until the last moment to negotiate this payment, guaranteeing that the company will have less money to work with and a constantly worsening negotiating position. By not drastically reducing his salary, payments to the board of directors, nor office and IR expenses, he is using up precious company funds. This almost guarantees the company will have to resort to a highly dilutive financing as a detriment to the shareholders. The high cash burn rate means that a financing will have to be obtained sooner rather than later, and more funds will be needed than otherwise. Funds obtained will be used up more quickly, requiring still another round of financing and further pressuring the stock price.