Interesting Article Is Americas Silver Corporation’s (TSX:USA) CEO Interest Aligned With Shareholders?
Darren Blasutti took the reins as Americas Silver Corporation’s (TSX:USA) CEO in 2014 and earned a total compensation of $726,522 over the past year. An executive receiving a large part of compensation through stocks is considered more aligned with shareholder expectations of strong total returns — the reason behind a vast majority of S&P companies opting for performance-based stock grants with stock-based compensation accounting for nearly 60% of the overall payouts in 2015.
Check out our latest analysis for Americas Silver In comparison, Blasutti received a stock-based incentive that is a smaller portion of total compensation, at 42.66% over the past year. An explanation for why Blasutti’s compensation is lighter on stock relative to peers may be due to the fact that stock-based payouts are tied to company performance, and USA’s earnings last year came in lower than expectations. However, over the past year, USA actually delivered positive earnings growth. Unless the CEO is already a significant shareholder in the company, there is room for improvement in USA’s executive compensation structure to foster higher alignment with shareholders. Another case that could raise some red flags is an abnormal situation in which the CEO receives a large jump in compensation, while EPS dropped in the opposite direction. This is a useful test to find significant mismatch between executive earnings and company earnings. Shareholders should be relieved as this is not the case for USA as EPS grew 81.03% over the past year, while CEO compensation shot up by 47.39%.
TSX:USA CEO Details Aug 9th 17
Is USA’s CEO overpaid relative to the market?
Maximum CEO Comp = (0.5% * Net Income + 0.03% * Market Cap)
Executive compensation has been a controversial subject due to its historically non-transparent nature and the influence of executive management over the board, which is set up to uphold shareholders’ interests. Reforms in financial regulations have now mandated companies to provide detailed description of their executive remuneration structure, helping investors assess whether the pay is indeed based on performance. Above is a simple equation I use to determine whether the compensation of S&P500 CEOs are paid at the appropriate level compared to the rest of the market. When I input USA’s variables into the equation, its CEO remuneration seems reasonable. This means Blasutti is not being overpaid relative to the rest of the market and how much USA made in earnings last year.
Final words
Salary paid by Americas Silver to the CEO seems slightly out of line compared to market standards, though growth in compensation isn’t completely incongruous with the company’s EPS performance. CEO compensation serve as a good indication for how well-aligned the company leader is with the rest of us shareholders. But it is certainly not enough to simply base your investment decision on this metric. Now that you know to keep in mind CEO compensation when putting together your investment thesis, I recommend you take a look at our latest free analysis report on Americas Silver to see USA’s fundamentals and whether it could be considered an undervalued opportunity.