Should You Worry About InspireMD Inc’s (NYSEMKT:NSPR) CEO Salary Level?
Jim Barry took the helm as InspireMD Inc’s (AMEX:NSPR) CEO and grew market cap to US$8.32M recently. 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. I will break down Barry’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 InspireMD
What has been the trend in NSPR’s earnings?
Profitability of a company is a strong indication of NSPR’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Barry’s performance. Recently, NSPR produced negative earnings of -US$12.27M , which is a further decline from prior year’s loss of -US$9.40M. Moreover, on average, NSPR has been loss-making in the past, with a 5-year average EPS of -US$131.18. In the situation of negative earnings, the company may be incurring a period of reinvestment and growth, or it can be a signal of some headwind. In any case, CEO compensation should emulate the current condition of the business. From the latest financial report, Barry’s total remuneration fell by more than half of the prior year’s level, to US$415.32K. Furthermore, Barry’s pay is also made up of 31.23% non-cash elements, which means that variabilities in NSPR’s share price can impact the actual level of what the CEO actually receives.
What’s a reasonable CEO compensation?
Even though no standard benchmark exists, since compensation should be tailored to the specific company and market, we can evaluate a high-level thresold to see if NSPR deviates substantially from its peers. This exercise can help direct shareholders to ask the right question about Barry’s incentive alignment. Typically, a US small-cap has a value of $1B, generates earnings of $96M, and pays its CEO at roughly $2.7M per year. Normally I would use earnings and market cap to account for variations in performance, however, NSPR’s negative earnings reduces the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Barry is being paid within the bounds of reasonableness. Overall, though NSPR is unprofitable, it seems like the CEO’s pay is appropriate.
Next Steps:
CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Is Barry remunerated appropriately based on other factors we have not covered today? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours. 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 NSPR’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 NSPR? 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.
