Nadir Ali took the reins as CEO of Inpixon’s (NASDAQ:INPX) and grew market cap to US$5.87M 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 Ali’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. View our latest analysis for Inpixon
What has INPX’s performance been like?
Profitability of a company is a strong indication of INPX’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Ali’s performance. Recently, INPX delivered negative earnings of -US$35.73M , which is a further decline from prior year’s loss of -US$26.36M. Moreover, on average, INPX has been loss-making in the past, with a 5-year average EPS of -US$216.49. During times of unprofitability the company may be incurring a period of reinvestment and growth, or it can be a sign of some headwind. In any event, CEO compensation should echo the current state of the business. In the latest financial statments, Ali’s total compensation declined by a non-trivial rate of -31.73%, to US$450.40K.
What’s a reasonable CEO compensation?
Even though one size does not fit all, since remuneration should account for specific factors of the company and market, we can fashion a high-level base line to see if INPX is an outlier. This exercise helps investors ask the right question about Ali’s incentive alignment. On average, a US small-cap has a value of $1B, generates earnings of $96M, and remunerates its CEO circa $2.7M per annum. Normally I would use earnings and market cap to account for variations in performance, however, INPX’s negative earnings reduces the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Ali is paid aptly compared to those in similar-sized companies. On the whole, although INPX is unprofitable, it seems like the CEO’s pay is appropriate.
In order to determine whether or not you should invest in INPX, your thesis should be built on fundamentals. Even though CEO pay isn’t technically a key concern, it could serve as an indication as to how board members align incentives and how they think about setting policies. These issues directly impacts how INPX makes money, and factors impacting your return on investment. If you have not done so already, I urge you to complete your research by taking a look at the following:
- Governance: To find out more about INPX’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 INPX? 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.