Leading Nu-Oil and Gas plc (AIM:NUOG) as the CEO, Nigel Burton took the company to a valuation of UK£13.44M. 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. Today we will assess Burton’s pay and compare this to the company’s performance over the same period, as well as measure it against other UK CEOs leading companies of similar size and profitability. View our latest analysis for Nu-Oil and Gas

What has NUOG’s performance been like?

Earnings is a powerful indication of NUOG’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Burton’s performance in the past year. In the past year, NUOG released negative earnings of -UK£2.17M , which is a further decline from prior year’s loss of -UK£765.00K. Furthermore, on average, NUOG has been loss-making in the past, with a 5-year average EPS of -UK£0.018. During times of unprofitability the company may be going through a period of reinvestment and growth, or it can be an indication of some headwind. In any case, CEO compensation should emulate the current condition of the business. From the latest financial report, Burton’s total remuneration increased over two-fold, to UK£106.00K , though from a small number.

What’s a reasonable CEO compensation?

While no standard benchmark exists, as remuneration should account for specific factors of the company and market, we can determine a high-level thresold to see if NUOG is an outlier. This exercise can help direct shareholders to ask the right question about Burton’s incentive alignment. On average, a UK small-cap is worth around £696M, generates earnings of £67M, and remunerates its CEO circa £1M annually. Typically I would use earnings and market cap to account for variations in performance, however, NUOG’s negative earnings reduces the usefulness of my formula. Given the range of pay for small-cap executives, it seems like Burton is remunerated sensibly relative to peers. Overall, although NUOG is loss-making, it seems like the CEO’s pay is fair.

Next Steps:

My conclusion is that Burton is not being overpaid. But your role as a shareholder should not end here. As above, this is a relatively simplistic calculation using high-level benchmarket. Proactive shareholders should question their representatives (i.e. the board of directors) how they think about the CEO’s incentive alignment with shareholders and how they balance this with retention and reward. If you have not done so already, I urge you to complete your research by taking a look at the following:

1. Governance: To find out more about NUOG’s governance, look through our infographic report of the company’s board and management.

2. 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.

3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of NUOG? 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.