Is Torrent Capital Ltd’s (CVE:TORR) CEO Paid Enough Relative To Peers?

[Archiee]

Wade Dawe took the reins as CEO of Torrent Capital Ltd’s (TSXV:TORR) and grew market cap to CA$5.44M recently. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. 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 Dawe’s pay and compare this to the company’s performance over the same period, as well as measure it against other Canadian CEOs leading companies of similar size and profitability.
Check out our latest analysis for Torrent Capital
What has been the trend in TORR’s earnings?
Profitability of a company is a strong indication of TORR’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Dawe’s performance. Over the last year TORR delivered a profit of CA$994.78K , moving TORR from negative territory of -CA$6.27K in the prior year to profitability. This could signal a turnaround given that TORR has been loss-making for the past five years, on average, with an EPS of -CA$0.016. As profits are moving up and up, CEO pay should represent Dawe’s valued-adding activities. During the same period, Dawe’s total remuneration more than doubled, to CA$78.00K , though off a low base.

Is TORR’s CEO overpaid relative to the market?
Even though no standard benchmark exists, as compensation should account for specific factors of the company and market, we can determine a high-level yardstick to see if TORR is an outlier. This exercise helps investors ask the right question about Dawe’s incentive alignment. On average, a Canadian small-cap is worth around $345M, generates earnings of $24M, and remunerates its CEO circa $770,000 per year. Considering the size of TORR in terms of market cap, as well as its performance, using earnings as a proxy, it seems that Dawe is compensated similar to the average Canadian small-cap CEO This could mean Dawe is paid a suitable level.

Next Steps:
Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in TORR, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. 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 TORR’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 TORR? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!