Is Straight Path Communications Inc (NYSEMKT:STRP) Excessively Paying Its CEO?
Leading Straight Path Communications Inc (AMEX:STRP) as the CEO, Davidi Jonas took the company to a valuation of US$2.34B. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. Today we will assess Jonas’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 Straight Path Communications
What has STRP’s performance been like?
STRP can create value to shareholders by increasing its profitability, which in turn is reflected into the share price and the investor’s ability to sell their shares at higher capital gains. In the past year, STRP released negative earnings of -US$55.23M , which is a further decline from prior year’s loss of -US$10.92M. Moreover, on average, STRP has been loss-making in the past, with a 5-year average EPS of -US$0.72. In the situation of negative earnings, the company may be going through a period of reinvestment and growth, or it can be a signal of some headwind. In any event, CEO compensation should mirror the current state of the business. In the most recent financial statments, Jonas’s total compensation increased over two-fold, to US$6.44M .
What’s a reasonable CEO compensation?
Despite the fact that one size does not fit all, as remuneration should account for specific factors of the company and market, we can fashion a high-level benchmark to see if STRP is an outlier. This exercise can help direct shareholders to ask the right question about Jonas’s incentive alignment. Normally, a US mid-cap is worth around $5B, produces earnings of $290M and remunerates its CEO circa $5.3M per year. Normally I’d use market cap and profit as factors determining performance, however, STRP’s negative earnings lower the usefulness of my formula. Looking at the range of compensation for mid-cap executives, it seems like Jonas’s pay exceeds its peer group.
What this means for you:
My analysis shows that Jonas may be paid above the appropriate level, based on the size of STRP and its recent year’s earnings performance. The question to answer now is whether this level of pay is justified. There are most likely other factors I have not account for, but in any case, this outcome should provide a basis for you as shareholders, to question the board’s decision to increase CEO pay in the future. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
1. Governance: To find out more about STRP’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 STRP? 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.
