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Is InterDigital, Inc.'s (NASDAQ:IDCC) CEO Pay Justified?

Simply Wall St

In 2005 William Merritt was appointed CEO of InterDigital, Inc. (NASDAQ:IDCC). This analysis aims first to contrast CEO compensation with other companies that have similar market capitalization. After that, we will consider the growth in the business. And finally we will reflect on how common stockholders have fared in the last few years, as a secondary measure of performance. This process should give us an idea about how appropriately the CEO is paid.

View our latest analysis for InterDigital

How Does William Merritt's Compensation Compare With Similar Sized Companies?

Our data indicates that InterDigital, Inc. is worth US$2.3b, and total annual CEO compensation is US$2.3m. (This figure is for the year to December 2017). While this analysis focuses on total compensation, it's worth noting the salary is lower, valued at US$620k. As part of our analysis we looked at companies in the same jurisdiction, with market capitalizations of US$1.0b to US$3.2b. The median total CEO compensation was US$3.7m.

This would give shareholders a good impression of the company, since most similar size companies have to pay more, leaving less for shareholders. Though positive, it's important we delve into the performance of the actual business.

You can see a visual representation of the CEO compensation at InterDigital, below.

NasdaqGS:IDCC CEO Compensation, April 22nd 2019

Is InterDigital, Inc. Growing?

On average over the last three years, InterDigital, Inc. has shrunk earnings per share by 8.5% each year (measured with a line of best fit). It saw its revenue drop -42% over the last year.

Sadly for shareholders, earnings per share are actually down, over three years. This is compounded by the fact revenue is actually down on last year. So given this relatively weak performance, shareholders would probably not want to see high compensation for the CEO. It could be important to check this free visual depiction of what analysts expect for the future.

Has InterDigital, Inc. Been A Good Investment?

With a total shareholder return of 26% over three years, InterDigital, Inc. shareholders would, in general, be reasonably content. But they probably wouldn't be so happy as to think the CEO should be paid more than is normal, for companies around this size.

In Summary...

InterDigital, Inc. is currently paying its CEO below what is normal for companies of its size.

The compensation paid to William Merritt is lower than is usual at similar sized companies. However, the earnings per share are not moving in the right direction, and the returns to shareholders could have been better. So while shareholders shouldn't be overly concerned about CEO compensation, we suspect most would prefer see improved performance, before increasing pay. CEO compensation is one thing, but it is also interesting to check if the CEO is buying or selling InterDigital (free visualization of insider trades).

Arguably, business quality is much more important than CEO compensation levels. So check out this free list of interesting companies, that have HIGH return on equity and low debt.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.