Leading Sphere 3D Corp (NASDAQ:ANY) as the CEO, Eric Kelly took the company to a valuation of US$15.64M. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. 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 Kelly’s pay and compare this to the company’s performance over the same period, as well as measure it against other US CEOs leading companies of similar size and profitability. Check out our latest analysis for Sphere 3D
What has ANY’s performance been like?
Earnings is a powerful indication of ANY’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Kelly’s performance in the past year. In the past year, ANY produced negative earnings of -US$26.29M . But this is an improvement on prior year’s loss of -US$79.57M, which may signal a turnaround since ANY has been loss-making for the past five years, on average, with an EPS of -US$16.12. As profits are moving up and up, CEO pay should mirror Kelly’s valued-adding activities. Over the same period Kelly’s total remuneration declined by more than half of the prior year’s level, to US$567.67K. Moreover, Kelly’s pay is also comprised of non-cash items, which means that variabilities in ANY’s share price can move the actual level of what the CEO actually collects at the end of the year.
Is ANY overpaying the CEO?
Despite the fact that there is no cookie-cutter approach, as remuneration should be tailored to the specific company and market, we can evaluate a high-level yardstick to see if ANY is an outlier. This outcome can help direct shareholders to ask the right question about Kelly’s incentive alignment. Normally, a US small-cap has a value of $1B, creates earnings of $96M, and pays its CEO at roughly $2.7M per year. Normally I would look at market cap and earnings as a proxy for performance, however, ANY’s negative earnings lower the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Kelly is paid aptly compared to those in similar-sized companies. Putting everything together, though ANY is loss-making, it seems like the CEO’s pay is fair.
Hopefully this article has given you insight on how shareholders should think about ANY’s governance policies such as CEO pay. As an investor, you have the right to understand how the board thinks about management incentives, and also the right to vote for and against substantial CEO pay changes. Governance is a big factor in investing, and I encourage you to dig deeper into those that represent your voice on the board. 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 ANY’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 ANY? 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.